Why the income effect keeps Americans buying jewellery as real incomes stall
The income effect helps to explain why Americans are still buying jewellery for themselves rather than waiting to receive it as a gift, even as real disposable income growth has slowed (1.9% year-on-year through August 2025). In fact, 80% of adult Americans said that they had purchased jewellery for themselves instead of receiving it as a gift. It explains how changes in real disposable income influence the quantity of goods consumers purchase.
When household incomes become stagnant in tough economic times, households do not usually stop shopping altogether. Instead, they shift spending away from larger purchases towards smaller indulgences. Economists point to two basic components of income-related changes that influence consumer behaviour: the substitution effect and the income effect. A substitution effect occurs when consumers choose to buy a different item because its price has become lower compared to other goods they normally purchase. As a result, people adjust their buying decisions to maintain their overall level of satisfaction while making the most of their available resources. The income effect, on the other hand, happens when a change in purchasing power affects a person’s ability to buy goods and services. When purchasing power increases, individuals are able to afford more products, which can lead to higher consumption.
Smaller luxury items tend to hold up better than larger luxury items during periods of economic instability. This is the basis of the Lipstick Effect, which rests on the observation that sales of high-priced goods usually suffer during economic downturns while sales of lower-priced products stay fairly stable. The latest data from EY show that year-on-year growth in real disposable income fell from 2.8% last year to 1.9% as of August 2025, and at the same time discretionary spending on travel and hospitality has reduced as disposable income decreases. During the downturn, many individuals have kept buying less expensive jewellery by drawing on their savings and borrowing on their credit lines to stretch what they can afford, since a flat salary cannot support as much. A $40 pendant can be supported by this kind of strategy, whereas a $4,000 holiday cannot.
Jewellery is an affordable category with a relatively low income elasticity
The future growth of jewellery sales depends on the elasticity of its demand with respect to income. Fine jewellery is classified as a normal good, and so its demand will tend to move together with income growth over time. That relationship has not held recently, however, as the growth of this particular market segment was minimal while incomes became stagnant. For jewellery that is non-luxury, the income elasticity of demand is between zero and one, which means that demand will tend to grow more slowly than personal income does. For this reason, jewellery sold at mass-market prices has historically shown a direct relationship between demand and income. The relationship becomes more pronounced at the higher end of the spectrum, where a downturn will affect the demand for luxury products to a greater extent. The least expensive jewellery types on the market behave in a way that is similar to inferior goods, and so they will attract demand from consumers who are in a weaker financial position.
Most of the Consumers Purchasing Their Own Jewellery Are Purchasing It from Smaller Producers
The self-gifting phenomenon has benefited smaller shops much more than larger ones. Most of the self-gifting market in 2025 was captured by unbranded independent makers, who generated an estimated 66% of jewellery revenue. Consumers appear more inclined to buy customisable and affordable jewellery than branded jewellery that carries a price premium. The independent jewellery label can charge a lower price than the branded heritage houses because it does not have to build in the marketing markup, and it can also use its price elasticity of demand to its advantage when consumers are looking for value, which allows it to stay competitive when consumers seek bargains. Because these shops differentiate their pieces on design rather than on the maker's name, they compete on design and craftsmanship, whereas the luxury heritage producers are the first to feel the effects of a downturn. Lighter-weight and lower-carat gold designs have also allowed independent shops to hold their margins without pricing out their customer base, since gold prices were near their highest level in late 2025.
Consumers Are Setting the Direction of the Market, Not Producers
Based on the results of the BriteCo survey conducted on 8 October 2025, Millennials (aged 30-44) are the most active self-purchasers (86%), with Generation X (81%) ranking second. Respondents in both groups were also the most willing to commit $2,500 to $5,000 to a single piece of jewellery (almost one in five), and 8% spent more than $5,000. The two primary motives for purchasing a piece of jewellery are to enhance a consumer's personal style and also to commemorate a life milestone (22% of both groups cited these motives). These are both long-standing motives for the purchase of jewellery and both tend to outlast a squeeze on incomes better than a discretionary holiday does. The data from this survey make clear that consumers are determining how they are going to spend their money, whereas the suppliers of jewellery are not influencing consumer purchasing decisions. Currently, there is a high volume of consumers who are making smaller, less expensive purchases for themselves. During periods of severe economic downturn, the share of consumer income allocated to jewellery is likely to fluctuate as these purchasing behaviours evolve.
