The psychology and economics behind our love for little treats during uncertain times

By Dr. Nik Zirwatul Fatihah

Have you ever wondered why people still queue for premium coffee, buy a new lipstick, or treat themselves to a nice meal even when everyone seems to be talking about rising living costs?

At first glance, it may seem contradictory. If money is tight, shouldn’t people stop spending on non-essential items altogether?

Yet history suggests otherwise. Behavioral economists have long observed an interesting phenomenon known as the Lipstick Effect. The theory suggests that during periods of economic uncertainty, consumers often reduce spending on expensive purchases while continuing to buy small, affordable luxuries. Instead of purchasing a new car, they might buy a new lipstick. Instead of booking an overseas holiday, they might enjoy a specialty coffee or a nice dinner.

The idea is not really about lipstick. It is about human behavior. The term became popular after Leonard Lauder, former chairman of Estée Lauder, observed that lipstick sales remained resilient during economic downturns. His explanation was simple. When people cannot afford major luxuries, they often seek smaller rewards that provide a sense of comfort, confidence, or enjoyment.

In many ways, it makes perfect sense. Imagine a young professional navigating today’s economic realities. Rent has increased. Groceries cost more than they did a few years ago. Housing feels increasingly out of reach. Savings goals move further away every month. Yet on Friday afternoon, they bought an RM15 coffee.

Some observers might immediately question the decision. “If money is tight, why spend on coffee?”

That question may have missed the point. The coffee is not merely a drink. It may be a moment of relief after a stressful week. It may be an opportunity to meet a friend. It is a small reward that makes a demanding routine feel more manageable.

This is where economics meets psychology. Traditional economic thinking often assumes that individuals make decisions solely based on financial calculations. Real life is more complicated. Human beings do not only seek efficiency. They also seek comfort, enjoyment, dignity, and emotional well-being. Therefore, small luxuries can fulfill these needs.

Just because something is available for purchase doesn’t mean it’s a smart financial choice. Nor does it mean that consumer spending should be celebrated without question. Rather, it reminds us that financial decisions are often shaped by emotions as much as by numbers.

In fact, the Lipstick Effect may reveal something deeper about modern life. Today’s economic challenges are not always visible. Many people have jobs, earn regular incomes, and appear financially stable. Yet beneath the surface, there may be concerns about housing affordability, job security, retirement savings, or future opportunities.

In such circumstances, small luxuries can serve as a coping mechanism. They provide a sense of control in situations where larger goals feel increasingly uncertain.

Interestingly, the Lipstick Effect is not limited to cosmetics. In today’s world, it may appear in different forms. For some people, it is skincare products. For others, it may be food delivery, streaming subscriptions, a weekend café visit, or a new book.

The specific item matters less than the role it plays. It represents a manageable form of happiness. This point becomes especially significant when we consider the perspectives of younger generations. Much has been written about how Millennials and Generation Z spend their money. They are sometimes criticized for spending on experiences, coffee, and lifestyle products rather than saving for larger goals.

Yet this criticism often overlooks a broader reality. For many young adults, major milestones such as homeownership, financial security, or retirement planning have become increasingly difficult to achieve. When large aspirations feel distant, smaller pleasures can become more meaningful. An RM15 coffee will not solve the housing affordability problem.

A new lipstick will not eliminate economic uncertainty. But neither purchase was ever intended to do so. The Lipstick Effect reminds us that people are not simply trying to maximize wealth. They are also trying to maintain well-being.

This distinction matters. Economic discussions often focus on what people can afford. Equally important is understanding how people experience their lives. Well-being is not measured solely by income, savings, or assets. It is also shaped by hope, satisfaction, and the ability to enjoy small moments despite larger challenges.

This may explain why the Lipstick Effect remains relevant. It highlights that even in challenging times, individuals continue to seek moments of joy. Not because they are irresponsible. Not because they are ignoring reality. But sometimes a small luxury is less about spending money and more about preserving a sense of normality in an increasingly uncertain world.

Interestingly, a recent trend among young Malaysians illustrates this perfectly. While many feel priced out of homeownership, are increasingly concerned about retirement savings, and are uncertain about future living costs, they continue to spend on what some jokingly call “little treats”. Whether it is a specialty coffee before work, a favorite skincare product, a weekend café visit, a new book, or even a late-night food delivery, these purchases often provide something larger goals cannot immediately offer: a sense of reward in the present moment.

That is the real lesson behind the Lipstick Effect. People do not live only for the future. They also need reasons to smile today. And sometimes, the smallest luxuries reveal the biggest truths about what it means to remain hopeful in uncertain times.