The term “lifestyle creep” is something that’s gained popularity recently to describe the way that people will begin spending more money as they make more money. Unfortunately, it’s often used with a negative connotation that often blames individuals for not having enough money rather than the systems that are actively making us all poorer.
People will use lifestyle creep to imply that the reason people are poor is simply because they are financially irresponsible. That when they start making more money, they should begin saving it or investing it rather than spending the money. But the reality is that even with increased income, an ever-growing amount of people still do not have sufficient discretionary income to build wealth like they “should.”
In the United States, we have this perception of attainability of the middle class, even as the middle class “has steadily contracted in the past five decades.” The wealth and glamour of the US sometimes obscures just how many people live paycheck to paycheck, and just what it means to live paycheck to paycheck. People who live paycheck to paycheck live in a situation where their whole life could change if they miss even one single paycheck or have one single emergency happen in their life. The figure is almost 80% of Americans say they’re living paycheck to paycheck, by the way.
It feels like the cost of surviving is drowning us every day more and more. More and more of us are rapidly living above our means not because we are financially irresponsible, but because the cost of our basic necessities (housing, groceries, healthcare, etc) is steadily becoming less and less attainable.
What is Lifestyle Creep?
According to Investopedia, “Lifestyle creep refers to the phenomenon where discretionary consumption increases on non-essential items as the standard of living improves.” And Wikipedia describes lifestyle creep closer to the phenomenon of when people start spending more money on their standard of living to the point where “former luxuries become perceived necessities.”
Essentially what lifestyle creep is describing is the pattern of behavior where as people’s incomes increase, they tend to spend more money on themselves for things that were previously out of their reach. However, the term is often coupled with the implication that this happens because people are financially irresponsible, and I think that’s largely incorrect. I believe it’s far more accurate to say that Wikipedia and Investopedia are misrepresenting what “non-essential items” are or how many people this is actually a problem for.
Reading either of these articles, they reference things like “excess spending” and how it can cause challenges in peoples lives when they have to downgrade lifestyles. While we can see this excess spending manifest online and maybe even with some people in our everyday lives, it’s critical to remember that excess spending is far more visible than necessities spending. In reality, for the majority of people, lifestyle creep manifests itself in much more mundane ways.
Is Lifestyle Inflation the Same as Lifestyle Creep?
Lifestyle inflation is another term for the term lifestyle creep, and they’re often used interchangeably. It refers to the phenomenon where people begin to spend more money on their lifestyle as their income increases. This causes items that were previously seen as luxuries to start to be seen as necessities rather than luxuries.
What is the Cause of Lifestyle Creep?
The way that lifestyle creep is often used in common language by the media, it feels like the cause of lifestyle creep is caused by the financial irresponsibility that comes with an increased income. However, more realistically, lifestyle creep is caused by the default state of the American people is largely people living without their basic needs met. Even more influential is corporations strategizing to make the most money out of their consumers in their goals of infinite growth, squeezing more and more wealth from the poorest of us to be held stagnant by the richest fraction of us.
The official poverty rate in 2022 was 11.5%, meaning that 37.9 million people live in poverty in the USA. We’d be remiss to say these 37.9 million people are experiencing lifestyle creep in a way that warrants the media’s implication that lifestyle creep is about excess spending. The people who were living in poverty who experience an increase in income are almost certainly increasing their spend on resources for their life that are still necessities, such as fresh groceries, childcare, housing, and other basic needs.
In fact, in a much more striking number, 29% of households have jobs but continue to struggle to cover basic needs. That means that even more of the baseline American experience is rooted in being shy of having our basic needs met, not just those legally considered to be living below the poverty line. So that begs the question: if so many people are living in a situation where their basic needs aren’t even met, is lifestyle creep really about excess spending?
Is lifestyle creep about moving toward finally getting your basic needs met? Are we really spending excess money on luxuries, or is the bulk of this “excess money” going toward things that we should already have as a human right, like quality healthcare and access to nourishing food?
Luxury vs Basic Needs Have Flipped
It’s also critical to note that over time the items that are considered luxuries can and do change. For example, between 1980 and 2021, the price of coffee increased, but when adjusted for inflation, the price actually has a downward trend. This means that coffee has become more accessible over the time. So while we consider it to be more of a luxury to be able to buy a cup of coffee, it was more of a luxury in the 1980s than it is today.
Conversely, the cost of housing in many cities across the USA has been rising faster than inflation, only expedited through the early years of the ongoing pandemic. “The monthly payment on the median-priced home nationwide [jumped] up 59 percent between 2020 and 2023, from $2033 to $3224.” Because of this jump in inaccessibility for purchasing a home, homeownership is considered a luxury to nearly an entire generation of young people in the US.
Housing has become so inaccessible to people, both ownership and renting, that between the year 2023 and 2024, homelessness rates jumped by an unconscionable 18.1%. And while housing is absolutely a necessity and a human right, as it becomes more inaccessible to more people, it quickly begins to feel futile to even try to save for a home. And when it feels futile to even attempt to save for a home, more people will opt for the much smaller luxuries that they can attain while they still can, like a cup of coffee, a designer bag, or an insurance plan with a low deductible.
That is to say that spending money on luxuries is not always a sign that people are spending irresponsibly or even living above their means. Especially when it is increasingly common that their means could never achieve purchases that are considered historically “smart investments” or other “life milestones.”
Are Lifestyle Creep and Bad Spending Habits the Same?
While lifestyle creep can very easily look like it’s simply about poor spending habits, especially with the way that it is framed in the media, for the majority of people they are not the same. With the minimum wage staying stagnant for the longest time since it’s establishment in 1938 in a country where “nowhere in the US can a full-time worker meet their basic needs on the federal minimum wage,” an ever-growing proportion of the United States population are struggling to get their basic needs met.
People who are struggling to have their basic needs met will consider necessities to be luxuries because they simply can’t afford it. When people can’t afford all of their basic necessities, they are forced to choose which necessities are more important, and the less important ones become luxuries. If people all across the country are struggling to get their basic needs met, then increasing your spending on things that previously would be considered luxuries is not a bad spending habit. That is a problem created by the increasing rates of poverty, which is a policy choice.
Does Lifestyle Creep Limit Wealth Building?
Lifestyle creep technically limits wealth building because it is describing the phenomenon where as more money comes into your household, more money leaves your household. However it’s critical that we understand that lifestyle creep is not the reason that people are unable to build wealth. Considering the way that lifestyle creep actively manifests in the lives of the American People, there are many things that limit wealth building far more than lifestyle creep.
Housing and health insurance are heavy burdens on the American people. They are burdens that people are increasingly unable to maintain, and many of those who are able to maintain it are still struggling to have all of their basic needs met. And when people are unable to meet all of their basic needs, they are forced to pick and choose which basic needs they can live without. So for people in this situation who see an increase in income, they are primarily going to recover the rest of their basic necessities.
Considering this is the situation for nearly one third of American households with jobs, lifestyle creep is not the reason that the ability to build wealth is limited. There are far bigger and more systematic issues that are pushing more and more people into poverty, especially people of the global majority. Lifestyle creep is not the problem.
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