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The Never Ending Issue With Lifestyle Inflation

Lifestyle Inflation. You’re supposed to aspire to always become a better, happier, healthier, wealthier version of yourself. But when does this end? And how long can you keep this up in an (economically) sustainable way? Before we dive in, let’s define some terms. Lifestyle inflation is a term coined to describe how people adapt their lifestyle to their wage: as wages go up (as is often presumed as a result of work experience and career progression), the lifestyle adjusts with it. CEOs drive sportscars, have mansions and expensive clothes and hobbies, whereas those who work for them, especially on the lower rungs are (slowly) working towards this. However, lifestyle inflation is assumed to be in isolation and just a direct result of making more money, and is not linked to keeping up with the Joneses, or whatever your bosses name may be. “Keeping up with the Joneses”, is a phenomenon describing how we look towards others (social comparison) to see what “someone like us” should be doing. This phenomenon is always present, because nothing we do ever happens in isolation. We are aware of those around us; those of similar station, those below us and those above us. We compare ourselves to all these groups to see where we fall in the hierarchy of overall society, of our subgroup (those of similar level) and where we aspire to be. It's the combination of the “Keeping Up” phenomenon with the general lifestyle inflation that becomes an absolute rat race, or even a debt trap.

Lifestyle inflation when taken out of its isolated context starts to become less descriptive of what others are doing and more prescriptive of what you ought to be doing now that you’re making more money. It also dictates that you should be making more money anyway, as such is the trap of capitalism. Throw the Joneses in for good measure and we now have a prescriptive script for how much you should be making, how much more you have to aim for, and what you need to spend your money on to signal your current and desired status in life. It becomes especially tricky when a certain amount of lifestyle inflation is associated with a higher chance of a promotion or higher pay occurring. Why is this an issue? Well, the inflation occurs before the money is made. If you don’t fully understand what I mean by this association, let me exemplify: If you’re on the lower rungs of a company, but you need to meet with higher ups, you’ll quickly realise the impact of the similarity bias: people like people like themselves. Issue is, you’re not yet like them, you’re still a rung (or several rungs below). What you can do to be more like them is to inflate your lifestyle. Have similar hobbies, wear similar suits, live in similar neighborhoods, support the same sports team, have similar tastes in whatever. If you’re lucky, some of this stuff won’t cost (much) money – but some if it might… Now why is this important anyway? Well, that’s because judgements aren’t made on merit. You may be the best person for a job: your content is excellent. But that’s not the way people consume information and judge it. The way you dress, your car, your hobbies etc. are all peripheral cues: they distract from the actual content, but do impact value, even when they shouldn’t. It’s once been said in pop. psychology that people only perceive about 30% of content (what you’re saying) and that the remaining 70% is peripheral (your suit, car, watch, hairstyle, perfume etc.).

Even if we leave the job aspect out of it – and it might seem very cliché as I’ve described it above, but people do actually do this – there is still the actual lifestyle aspect. People often aspire to things and will try to obtain them, even if that’s financially not smart, sustainable or even responsible. For example, the picture used with this article. A massive mansion is a great way to incite desire. If you own such a house, as many a multi-millionaire does, you must have made it. The association is clear: you’ve made it, so you own this type of house. But the association as a result can also be reversed, or at least, has often been reversed: you own this type of house, so people will assume you’ve made it. This is how I feel a lot of influencers (Instagram models etc.) make their money. They’re selling you pictures of their lifestyle, which is a lifestyle a lot of people do seem to want: lots of travel, luxurious items (fashion, cards, houses etc.), ideal bodies, no responsibilities and a surprising amount of parties even during the lockdowns. All of it is (obviously) fake. But that’s the issue, it’s not that obvious. Younger generations are struggling to figure out what’s real and what’s fake (edited, not owned by the influencer in question) and these influencers aren’t exactly super open about what’s being gifted to them as a sponsorship, how much money they make and what part of their life is, in fact, real. Not only do we now aspire to things as experienced by those in our direct surroundings and those similar to those, we’re now aspiring to anything perceived on social media, which can be posted by anyone, from anywhere in the world, with no guarantee that it’s real. And figuring out the pragmatics of it is becoming increasingly more difficult to do, as no one is being honest about what’s going on. I pity the younger generation for this. I really do.

One possible solution to this type of lifestyle inflation is to opt-out of a lot of this type of rat race thinking. Back to the example of the massive house, ask yourself: what are you going to with it once you have it? Does it make sense for you to own such a place? And once you do, then what? The question “then what?” is often quite a good start at introspection and uncovering your true motives for wanting certain things. If it’s admiration you want, does that have to come from a massive down payment with a killer mortgage? If you want people to be envious of you, you need to uncover why that is. It often stems from extreme insecurity or passed trauma. What do you REALLY want? Often, the higher goal being aimed for with lifestyle inflation is not a change in status, or wealth or being able to “flex” on the neighbours: it’s the desire to feel fulfilled, a sense of belonging, security or just be happier than you currently are. And unfortunately, often these things cannot be achieved by making more money, adapting to a more expensive lifestyle and “flexing the day away.” But it makes very little sense to brag about all the goals you’re smashing with your therapist – that’s just not cool yet.

The solution to a lot of these debt traps, because a lot of people do continue to consume well beyond their means to fit the mold of what life should look like, is introspection – no one’s favourite pass time. Ignore Instagram, ignore your friend who landed a great job and is now spending money as if there’s no tomorrow and stop fantasizing about what the first thing is that you’re going to buy if you do get promoted. Figure out what you really want, even if it’s going through an entire list of “standard life goals” and picturing what it would be like to have already obtained them: and then what?


Behavioural Science

Personal Finance



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