A consumer’s lifestyle can change if income increases or decreases. Market

studies show that as a consumer’s spendable income increases, she’s more

apt to spend money on her wants rather than her needs. She feels a sense

of spending freedom. Consider, for example, lottery winners. Is a winner’s

first purchase a loaf of bread? Typically not. It’s a new home, a luxury car, or

an extravagant vacation. Specifically, when income increases, the following

behaviors takes place:

 ✓ The percentage of money spent on basic necessities, such as food and

clothing, increases. The reason for this is that consumers are now no

longer worried about running out of money. Instead, they feel free to

spend more.

 ✓ The percentage spent on housing remains constant, but utilities like gas

and electricity decrease, because they’re now spending more money

traveling and vacationing in the tropical islands and less time at home.

 ✓ The percentage spent on other items — such as recreation, education,

self-help, and luxury items — increases.

Change of income for consumers often creates either freedom in spending

or restraint in spending, depending on whether the income increases or

decreases. What typically happens is that in the initial phase of an income

increase, consumers spend money rapidly, because their income boundary

feels lifted by more discretionary income. If a consumer’s income decreases,

she will begin to look for ways to save money. In both of these scenarios, the

consumer’s lifestyle is affected by the amount of income.