Why We Splurge on Small Luxuries When Money Is Tight

We find ourselves in the middle of another financial crisis. Big purchases are out of the question. We only buy the essentials. When did all those artisanal soaps, aromatherapy fragrances, or the extortionately priced speciality iced latte on the way into the office become essential?

Something has happened in the way we view, and buy, luxury goods.

We do not give up luxury. We buy it smaller.

Hard times change how we shop, though not always in the way you would expect. When money gets tight, we start reclassifying what is essential and what is merely nice to have. What we tend not to do, however, is give up luxuries altogether. They too become essential, and we just buy them smaller.

Marketers have named this the small treat economy. Buy a little something from a big-name label, and you get a taste of luxury without the costs that usually come attached. Luxury brands have been quick to respond.

Dior and Hermès have widened their makeup lines. Diptyque sells its candles in miniature, and Coach now offers more small accessories like bag charms and key rings. The balancing act is to sell luxury to cash-strapped customers without letting the brand itself feel cheap.

In doing so, they are appealing to a new kind of shopper. One who has begun to psychologically reclassify what is worth splurging on. Understanding this behaviour takes us back to a department store at the turn of the millennium.

Lauder’s lipstick

By late 2001, the American economy was already contracting. The dot-com bubble had burst in the spring, and the September attacks accelerated an economic decline that was well underway. Leonard Lauder, then chairman of Estée Lauder, braced for the grim financial realities ahead. But he noticed something odd.

While the rest of the department store fell quiet, one counter stayed busy, and one product kept selling: lipstick. This lipstick effect let Lauder argue that sales of small, affordable luxuries could double as an audit on the state of the nation’s finances.

The designer coat or handbag is suddenly out of the question, but a lipstick from that same designer? That still feels affordable, and it still feels like a treat.

From that single observation came one of the stranger ways we have tried to analyse the state of the economy.

Small treats like designer lipstick are common purchases during hard times.

Source: DS stories / Pexels

Shopping in a financial crisis

One of the most detailed audits we have comes from MacDonald and Dildar (2020), who examined household spending during the Great Recession using the U.S. Bureau of Labor Statistics’ Consumer Expenditures Survey. They found a significant rise in average cosmetics spending among younger women in particular, and evidence that the money had been substituted away from clothing. Which is, more or less, exactly what Lauder observed himself.

The rise held regardless of marital or employment status, which went against the original explanations that the literature had previously favoured. Hill and colleagues (2012) had run a series of studies and similarly found that recessionary cues reduced women’s desire for most products but consistently increased their desire for beauty products. However, their interpretation of this behaviour was evolutionary. They argued that hard times heightened mate-attraction motives, which beauty products can help serve.

So we have experiments pointing one way and household spending data pointing another. If the expectation really is mate attraction, single women should be driving the numbers. In the spending data, they are not. Everyone is.

The effect appears to be real, but why it happens is still being argued about. The answer may lie in an analysis of the current economy and who has been hit the hardest.

The lipstick effect is for life, not just for recessions

The old assumption was that once the crisis was over, we would all go back to spending freely, but that has not happened. After years of one crisis running into the next, and prices that only ever seem to go up, the luxury treat has stopped being a one-off for special occasions and turned into a way of life.

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Today, much of the world is in some calamity or another, and an entire generation has grown up knowing little else. Their careers began later and on shakier ground. They seek employment in a labour market that has been quietly rethinking how many early-career people it actually needs. Things once widely affordable have become extravagances. The down payment on a first home or buying that diamond ring and marrying your childhood sweetheart; these are goals that drift a little further away each year.

The milestones their parents took as standard have slipped somewhere between the improbable and the imaginary. Batamirova and Thrassou (2025) argue that Gen Z and millennial luxury consumption has reorganised itself around smaller and more attainable purchases, and it is not hard to see why. If the big thing is never going to arrive, why save for it? Repeated small indulgences become a sensible second best.

Nowadays, it is not just lipstick. Look at the recent downturns and the same pattern shows up in other little pleasures. From gourmet food to designer accessories and even curated stationery, a whole category of small luxury consumables has appeared. When the outlook is bleak, and the budget is tight, a small indulgence you can still afford is a practical and reliable way to feel a bit better about yourself and, indeed, the world.

We still want luxury, whatever the economy is doing. That feeling has not changed. But the size of the thing we buy, and how often we buy it, definitely has.