If It Makes You Happy, It’s Worth Every Cent: What’s The Lipstick Effect?

Have you heard of Retail Therapy? In the midst of a concerning cost-of-living crisis, you might think people would tighten their purse strings. But in reality, people seem to make exceptions for little luxuries. The typical example is cosmetics.

During the Global Financial Crisis between 2007 and 2009, the income elasticity of lipstick in the US fell from 0.31 to 0.05. Before the recession, if your income dropped by 10%, your spending on lipstick would fall by 3.1%. But during the recession, the figure fell by just 0.5%.

There Are Two Possible Explanations.

The aforementioned statistics imply lipsticks become a thing we cannot go without during recessions, just like bread, milk or tea. There are two possible explanations. One, you’re involved in some mental accounting gymnastics. Two, your behaviour is absolutely rational.

If it’s mental gymnastics, it would be a classic example of “girl maths”, a term that has become an internet sensation. We might tell ourselves: My Christmas present this year is $100, so anything I buy with it will essentially be free; Or I’m making money if I buy this item at a discount.

But just so we’re clear, this process of rationalisation has nothing to do with gender. Maybe it’s not girl maths at all. Perhaps it is rational economic decision making. Marketers call it the lipstick effect. Small touches of luxury can make us feel good, particularly during recessions.

We Don’t Need To Be Eaten Alive By Guilt

None of this is to say that our impulsive spendings are always smart decisions. The thing you got with cash from a Christmas present? It isn’t free after all as there was the opportunity to purchase other things with the money. But we don’t need to be eaten alive by guilt.

Although there are whole industries dedicated to encouraging us to spend more, it isn’t wrong to indulge in a little bit of impulsive buying if you are craving that little luxury. Once the basics are covered, go for that extra mile at times. Because if it makes you happy, it’s worth every cent.