What is lifestyle inflation?

Lifestyle inflation refers to the phenomenon where an individual's spending increases as their income rises. This often occurs when people begin to feel more financially secure and consequently upgrade their lifestyle, spending more on luxuries, dining out, vacations, or other non-essential items.

When income increases, many find it tempting to indulge in more expensive habits or purchases, leading to a cycle where their expenses grow at a faster rate than their income. This can result in a situation where people save less or even find themselves living paycheck to paycheck despite having a higher income.

The other choices describe different financial behaviors. For example, saving more money as income increases would be a sign of prudent financial management. A decrease in expenditures when income rises doesn't align with the typical pattern seen in lifestyle inflation, and maintaining a fixed spending rate regardless of income doesn't capture the essence of lifestyle inflation, which is characterized by growing expenditures.