Does the Life-Cycle Theory Really Matter? Saving and Spending Habits of College Students

This study looked at the financial behavior of college students and recent alumni as it relates to economic theory and the life-cycle hypothesis. With student loans increasing dramatically and credit card debt becoming more of a reality, it is critical to understand what drives financial stability or instability after graduation. The pool of 230 participants was composed of 174 women and 56 men, representative of eight years of graduating classes, 2009-2016, from Connecticut College. Students comprised 29.1% of the participants and alumni made up the remaining 70.9%. Participants completed a survey including three quantitative measures on credit card use, financial well-being, and attitudes toward debt, as well as an extensive demographic questionnaire regarding spending and saving habits. Results suggested that participants overestimated future salaries, making it difficult for them to smooth current consumption based on future earning as predicted by the life-cycle model. Debit and credit were not the primary methods of payment of the participants who reported a preference for using cash. Students who were confident financially were more responsible with their credit cards and more tolerant of debt. The life-cycle hypothesis, although a theoretically sound model, was not upheld by participants in this study