Gen Z is rewriting the rules of indulgence one matcha latte and sneaker drop at a time.
For decades, economists and marketers have relied on the “lipstick index” to explain how consumers react to tough financial times. The idea, attributed to Estée Lauder heir Leonard Lauder, suggests that when larger purchases become out of reach, consumers compensate by treating themselves to smaller luxuries like lipstick that boost morale without breaking the bank.
But according to a new PwC report analyzing nearly a million customer transactions, young consumers are reinterpreting that idea for a new era. Instead of luxury lipsticks, they’re splurging on “micro-luxuries” things like matcha drinks, resale sneakers, or skincare-infused cosmetics that combine wellness and style.
“Micro luxuries like a pricey matcha, a resale sneaker drop, or cosmetics that double as skincare can telegraph cultural relevance without breaking the bank,” the report notes.
The difference lies in what Gen Z considers valuable. Lipstick was once a symbol of affordable glamour; Gen Z’s choices, however, are rooted in “affordable affluence,” PwC said. These purchases are about self-expression, improvement, and emotional payoff products that make them feel better and smarter about where their money goes.
“For this generation in particular, self-improvement outcomes are very high on their interests list,” said Ali Furman, a partner at PwC.
One of the best examples of this shift is matcha. Once a niche import found in the back of tea aisles, matcha has become a cultural phenomenon fueled by TikTok aesthetics and wellness claims. Gen Z drinkers see it as a ritual, not just a beverage.
“Years ago, it was in the tea aisle on a shelf,” Furman explained. “Now, it has evolved into a calm energy ritual, and that is much more appealing to a Gen Z consumer.”
The same goes for designer sneakers. Instead of luxury handbags or jewelry, younger consumers are spending hundreds on limited-edition footwear drops, often viewing them as both fashion statements and investments. These items blend function, identity, and exclusivity all at a scale more attainable than traditional luxury goods.
Still, this spending comes amid financial pressure. PwC’s survey of 4,000 consumers 1,000 from each generation found that Gen Z plans to cut holiday spending by 23% this year, while millennials are reducing spending by just 1%, and older generations are increasing theirs slightly. The finding underscores the tension between Gen Z’s desire for quality experiences and the reality of tighter budgets.
Many in this generation are still finding their financial footing entering an uneven job market, paying off student loans, and hitting major life milestones like marriage and parenthood, which bring new expenses. These economic realities have pushed Gen Z to redefine what counts as “worth it.”
According to the report, younger shoppers often wait for sales, look for “dupes” or private-label versions of popular brands, and evaluate purchases through the lens of value and long-term benefit. They’re willing to indulge but only in ways that feel justifiable.
“It’s that coming-of-age issue combined with the economic climate,” Furman said. “They’re not just looking for luxury; they’re looking for products that feel meaningful and responsible.”
Ultimately, Gen Z’s version of the lipstick effect isn’t about vanity it’s about balance. Their small luxuries aren’t escape purchases but self-affirmations: matcha that fuels focus, sneakers that signal identity, and skincare that doubles as self-care.
In redefining indulgence, Gen Z isn’t rejecting the old lipstick effect they’re updating it for a world where every dollar, and every detail, needs to mean something.
