20 Tips to Help Children Avoid it Later!
Lifestyle Creep or Lifestyle Inflation is the habit of spending more and upping one’s lifestyle, as you earn more or have access to more income. Items previously considered as luxuries, quickly and unconsciously become needs.
There is a fine line between lifestyle creep and improving one’s standard of living. Being able to afford better quality, more expensive things and having more financial security are what we want for our children as they move through the phases of their lives. But unless they are financially educated, intentional and mindful with their money, they may well earn six-figures but still struggle to make ends meet, and have nothing or very little invested for their retirement.
Lifestyle Creep is scary because it’s subtle and gradual… mostly we don’t realise it’s happening until it’s too late.
The consequences of Lifestyle Creep can be detrimental to our children’s future financial and mental well-being. The goal is to ‘widen the gap’ between between income and expenses, rather than ‘close the gap.’
Signs of Lifestyle Creep could include:
1. Looking like a million bucks, but drowning in debt.
2. Increased spending to project a certain image.
3. Consistently living paycheck to paycheck.
4. Buying big brand names just because you can.
5. Ditching your budget because you think you don’t need it anymore.
6. Growing reliance on credit cards and consistently increasing the debt carried.
7. Stagnant or no savings.
8. Regularly upgrading possessions – getting the newest and the latest because you can afford a higher monthly payment.
9. Higher rent, bigger house, bigger mortgage, larger monthly payments and more renovations.
10. Splurges and luxuries become essentials.
11. Eating out and grabbing takeaways more frequently.
12. Increasingly expensive and more regular holidays, mini breaks, expensive nights and weekends away.
Some common causes of Lifestyle Inflation:
1. Social media and social comparison
2. Lack of financial education and knowledge
3. Peer pressure
4. Advertising and marketing
5. Emotional fulfillment
6. Consumerism and instant gratification
7. A scarcity mindset
20 tips to help children avoid lifestyle creep later on:
1. Help them understand that sometimes sacrifices have to be made now for gains later on.
2. Lay a solid financial foundation for them and give them the opportunity to write a money story grounded in abundance and wealth building.
3. Talking about ‘what is enough’ and ‘what makes them feel happy’ helps them measure contentment through a lens other than that of consumerism.
4. Teach them to think and act like an investor, not just a consumer. A consumer spends without an expectation of a financial return. An investor knows the difference between assets and liabilities and spends with the expectation of a financial return in the future.
5. Let them know it’s okay to treat themselves and have fun with their money, but only within their budget.
6. Encourage long-term thinking and behaviour.
7. Teach them how to set and track financial goals (short, medium and long term) using the WOOP and/or SMART goal setting techniques.
8. Create opportunities for them to cultivate supportive money habits, like The Investing Habit (invest 50% of all income), The Daily Gratitude Habit, and The Passive Income Habit.
9. Explain how to consistently build and maintain an emergency fund to help weather financial storms, such as urgent expenses or loss of income.
10. Keep spending steady and conscious and avoid impulse purchases with a ‘desires list.’
11. Create and stay true to a zero-based, values-based budget, and track spending using an app or a simple Excel spreadsheet. Always include fun and splurges in the budget.
12. Teach them how to manage a credit card so it works for them rather than just for the bank.
13. Automate saving and investing and increase both according to increased income.
14. Increase the percentage contributions to their country’s retirement scheme, e.g. Kiwisaver in New Zealand.
15. Understand if a potential purchase is a need or a want, and teach the difference between cheap and frugal.
16. Use strategies to delay gratification and teach them to say “It’s not in my budget!” without feeling guilt or shame.
17. Practice gratitude and enjoy what they already have.
18. Invest the increased salary or extra income received, or a predetermined percentage thereof.
19. Surround themselves with like-minded people to help them stay grounded, motivated and on-track to achieve their financial goals.
20. Expect the judgment that will come from others for some of their financial choices.
Lifestyle Creep is an easy trap to fall into but it can be avoided and it doesn’t have to steal a child’s future wealth and wellbeing. Teaching children how to balance enjoying life right now with achieving long term financial goals is key to their financial wellbeing.