- Despite concerns about inflation and a possible recession, consumers are still spending — and even splurging on occasion.
- But when it comes to discretionary spending, splurges look different in 2023: These days, adults would rather treat themselves to drinks or dinner out.
- Spending on experiences is important, one advisor says, as long as it fits in your budget.
Consumers are sending mixed signals.
For the most part, people are concerned about inflation and the direction of the U.S. economy. Consumer spending sank in March, according to Morning Consult. “Sticker shock” has taken a toll, the report found, with consumers more likely to walk away from a purchase because the price is too high.
However, many are still spending — and even splurging on occasion, other reports also show.
To that point, 75% of adults said they splurged over the past month, although fewer than half said they could afford those types of purchases, according to a recent paper by Deloitte based on consumers in 23 countries.
Lipstick index is now ‘bourbon barometer’
The “lipstick index” was initially coined by former Estee Lauder chairman Leonard Lauder after the bursting of the dot-com bubble in the early 2000s sent the economy reeling. Lauder noticed that women substituted costlier luxury items for practical indulgences like lipstick.
The theory stuck: Even in tough times, consumers might rein in their spending, but they will still buy small luxuries on occasion, like a lipstick.
However, lipstick may not be the economic indicator it once was.
Deloitte’s researchers found that consumers are treating themselves, but they are now indulging differently.
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“The bourbon barometer may be a more accurate reflection of these splurge behaviors,” the researchers wrote.
For starters, men are statistically as likely to splurge as women. And when they do, men shell out more. While lipsticks cost about $10, on average, adults are now spending $32, on average, on their splurges, according to Deloitte.
Further, when it comes to discretionary spending, adults are more likely to treat themselves to dinner out or premium spirits rather than cosmetics.
Consumers in the U.S. are four times more likely to have said their latest splurge purchase was food and beverages over personal care, Deloitte found.
In fact, premium spirit sales are booming.
“Despite the tough economy, consumers continued to enjoy premium spirits and fine cocktails,” Chris Swonger, president and CEO of the Distilled Spirits Council of the United States, said in a statement.
“Cocktail culture continues to thrive in the United States,” Swonger said.
How to budget for experiences
To better budget for such indulgences, “always make sure you understand where you spend your money and how much is going toward needs over wants,” said certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida.
Although spending on high-end cocktails should come only after necessary expenses are covered and savings are set aside, such experiences are important, she said. Determine how much you have left over at the end of the month and designate some of those funds for going out.
“Buying stuff only brings a short-term bump in happiness but experiences bring a lot more pleasure,” McClanahan said.
But “always look for deals, too,” McClanahan added. “Go to happy hour.”
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