/// THIS WEEK
Earners,
Have you heard of the term “luxury poverty”? It’s a relatively new term for the paradox of young adults buying small luxury items to signal wealth, even if they have none.
This week, we’ll discuss how young adults are managing and living this reality. How are they able to afford such nice things and keep their finances under control? The truth is, most don’t.
[ INSIGHT ]
Let’s take Stefan and Angelo. They’re both 27 and earn roughly $120,000 a year.
Let’s look at Angelo’s expenses:
Vehicle: With a 72-month loan (and a 7% interest rate) and a new car priced at the national average of $50,000, with a 7% sales tax bringing the final cost to $53,500. This brings the monthly costs to $858 per month (for the next six years)
Apartment: high-end apartment $4,500 per month
Technology: $40 per month
Not accounting for other basic living expenses, Angelo is paying approximately $5,398 per month.
All of this seems relatively normal, given his salary and no other obligations (i.e, no children, mortgage, etc).
Now, let’s look at Stefan’s lifestyle:
Vehicle: Stefan bought a used car in cash, priced at $7,500. Since he paid it all in cash, he doesn’t have any monthly expenses other than refilling the gas tank.
Apartment: low-end apartment $1,800 per month.
Technology: Stefan has had the same phone for years. Not the most up-to-date technology, but it works fine.
Similar to Angelo, not accounting for other basic living expenses, this brings his monthly costs to approximately $2,000.
When we compare the two lifestyles, Angelo has spent half of his annual salary on superficial costs. All of his expenses are depreciating and will not serve him in the future. Stefan, on the other hand, keeps his fixed monthly costs low and saves a quarter of his pretax income (i.e., $30,000 per year) into retirement accounts and brokerage investments.
/// DATA
U.S. credit card balances have surpassed $1 trillion, and average interest rates are now above 20%, per Federal Reserve data
Approximately 44% of Gen Z in the U.S report using buy-now-pay-later services
New vehicles lose roughly 20% of their value in year one and over 50% within five years
[ BREAKDOWN ]
In the above examples, nothing is all that drastic. Angelo’s lifestyle isn’t uncommon for someone in his position. The real danger isn’t one purchase; it’s the accumulation of them that are destroying his savings before he can have a chance to build anything. The wealthiest young adults aren’t depriving themselves permanently. They’re focused on building until they reach real financial security, and then they spend. By that point, they actually can.
There are five things I want to highlight here:
Invisible Assets Outperform Visible Assets
At 8% annual returns, what Stefan is investing will compound to over $450,000 by the time he turns 35, and well into the millions if left untouched. Angelo’s car, meanwhile, loses 20% of its value in year one and over 50% within five years. High-interest debt compounds. His income sustains a lifestyle, but almost none of what he owns holds value.
Looking Rich is Expensive
Keeping up with the latest trend, upgrading technology constantly, and having to keep the appearances up to date gets costly. When you keep a low profile and stop performing “wealth”, you stop spending on expensive but ultimately worthless material items.
Lifestyle Inflation
Lifestyle inflation compounds the problem. When income and expenses grow at the same rate, your financial situation remains unchanged. A $20,000 raise that’s fully spent leaves you with higher obligations. However, if Stefan invests $15,000 of that raise at an 8% annual return over 10 years, it grows to about $225,000. Over 20 years, it has grown to nearly $700,000.
Your 20s and early 30s are the most flexible years, and every fixed cost you add reduces that flexibility.
Perception
There’s also a psychological layer that often gets overlooked. Harvard economist David Laibson’s research on relative income reveals that people assess their well-being relative to their peers, not in absolute terms. As the benchmark constantly shifts, the goalpost becomes infinitely high.
Comparison Spiral
Research published in behavioural journals consistently links high social media use among young adults to increased materialism, financial anxiety, and decreased life satisfaction. When your success metric becomes what others can see, your financial decisions begin optimizing for visibility.
[ TAKEAWAY ]
Stefan’s advantage over Angelo lies in his focus on long-term growth rather than short-term gains. Maintaining a low profile limits external influences, allowing him to make decisions based on controllable factors like savings rate, debt levels, and investment contributions. This approach fosters genuine wealth accumulation.
Earn more,
TCE
[ MONEY TIP OF THE WEEK ]
When you get a raise, decide where it goes before it hits your account. Put at least 70% of the increase directly into savings or investment from day one. You’ll still get a lifestyle upgrade, just not the full amount. Over time, that single habit separates income that builds wealth from income that just funds a more expensive version of the same place you’re already at.
