Once you trade up, you are never going back.
Lifestyle inflation is a real phenomenon that I’ve surprisingly seldom talked about. Basically, it refers to the strikingly true fact that most people increase their spending as their income increases no matter how much or how little they earn.
Stepping up the standard of living ladder is fun but it absolutely sucks for people who have to scale back. Now that we are expecting our first child, we should not only think about the danger of our own inflation bubble but also of our children’s. My parents always reminded me that they were very happy making their own games with paper. In fact, they said it was one of the happiest times of their lives. But in this day and age of Nintendo Wiis and Sony Playstations, kids would look at you like you are crazy if you even hint at playing those paper games. It’s not that the games of old are no good. It’s just that they are used to much more complication toys.
In fact, Inflation Starts the Second You Are Born
My mom called me the other day and told me she bought some baby underclothes for her grandchild, but when she saw softer, more expensive versions, she bought the nicer ones and returned the ones she already purchased. My immediate thought was “what if the baby gets used to the really nice undershirt and cry when we give her standard ones? Are we going to expose our children to the higher standard right from the beginning?”
Other, Bigger, More Important Aspects of Our Standard of Living
Fortunately, baby clothes is a relatively minor issue. What’s more important is the bigger ticket items, like…
- The House – Living in Southern California, we live literally a few miles from the ultra rich. Emma and I agreed that we shouldn’t live in a place where our house would fall in the same school district as those multi-million dollar homes because we rather have our kids grow up not being exposed to some of the reckless parents who shower their kids with money.
- The Car – Last night, Emma suggested that we shouldn’t ever buy our kids a high priced vehicle as a teenager in a luxury car zipped by us. How is the child ever going to live below their means if you start them off with a Ferrari on their 16th birthday?
I used to think that lifestyle inflation is perfectly fine if you have confidence that you can forever keep it up. However, the statement is flawed. Inflation is only okay if you can ensure that you, your children and every decedent of yours can cope with a possible deflation.
Even if you don’t want to curb your own lifestyle inflation, at least do it for your children.