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Should You Tip More During Inflation?

GOBankingRates logo GOBankingRates 22/06/2022 Nicole Spector
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Inflation is taking a toll on everyone, but the brunt of it is being sorely felt by lower income earners whose hourly pay peaks at minimum wage. For many of these workers — employed in the service industry — tips make up the lion’s share of their income and can be the difference between getting by and living in poverty.

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“Many people working in hospitality and service industries, such as restaurant servers, hair stylists, valets, bartenders and estheticians, rely on tips from customers for income,” said Laura Adams, a personal finance expert with Finder.com. “They typically earn a low hourly wage, sometimes less than minimum wage, and depend on tips to significantly supplement their earnings.”  

Considering this, it’s evident that there is only one right move a consumer can make, and that’s to tip service workers and tip them well — especially if they provided top-notch hospitality. But what about during inflation? Should we be tipping more? 

The answer is yes. Let me explain why.

We Have an Empathy Problem

First, we must recognize our own possible shortcomings in truly empathizing with service staff. If we haven’t held tip-reliant jobs in the past or present, we simply can’t grasp just how important tips are.    

“My past job I was a valet attendant at the Golden Nugget in Las Vegas,” said Corey Holtam, founder of SmallBizBuddha.com. “Now, I own a small tourism and experience business where my staff still relies on tips for about 10% to 20% of earnings.”

In Holtam’s experience, tipping has always been a difficult business model to depend on for income because service workers can’t necessarily rely on consumers to pony up their fair share for a tip. 

“People you expect to tip have not lived on tips before,” Holtam said. “How can we expect someone to understand if they haven’t experienced the situation?”

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We Need To Budget for Tipping 

Another problem is that we tend to not budget for tipping when planning an experience that calls for it. 

“At work, we do our best to provide the best service possible, but when a customer pays for an experience it’s hard for them to throw cash to the service worker after,” Holtam said. “Some people have a budget set out when they start their vacation and tipping isn’t included.”

Holtam states the painfully obvious: “If the price of gas is up 2x and wages are lagging, how are tipped employees supposed to keep up? Tips are literally the only way some employees are able to take care of their families.”

Undertipping Has Been a Problem 

Inflation is driving the need to tip better — and it’s also exposing just how lousy we’ve been at tipping for years now. 

“Take valet for example, a family takes a trip in 1990 and they tip the valet parker $1 for the car when it arrives,” Holtam said. “Then, 30 years later, the adults who were in Vegas as children take their kids to Vegas. They are checking out, and when the car comes, they give the valet parker $1. The room costs 500% more, the meals are 300% more, but the tips are the same.”

How Much More To Tip? 

Many of us can do a better job at tipping, but we really need to try our best at tipping now given the fury of inflation.

“Nobody likes to spend more than absolutely necessary during inflation, but paradoxically, this is the biggest argument for tipping more, not less,” said Adam Garcia, founder of The Stock Dork. “The thing is, prices are going up for everyone, and service workers are likely to feel it more than most other categories of workforce. So if you can afford to eat out regularly despite the rising inflation, you should factor in this difference and be able to afford tipping more too.”

So the question is not so much whether we should tip more (we should), but how much more we should tip in an inclement economy that is being pummeled by inflation. The absolute best rule to stick to is the rule of percentages. 

“For instance, if you tip a restaurant server 15% of your bill, you’ll be tipping more when the total goes up,” said Adams. This way when the price of goods rises, the price of tipping automatically rises with it. 

Tipping Is Good for Everyone, Ultimately 

Bear in mind that while generous tipping can be viewed as an annoying expense, it ultimately makes the service industry a better place for all.

“Tipping is a mechanism to facilitate strong incentives to provide high quality service to service providers whose service level is readily observable by the consumer (and perhaps less so by the employer),” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business.  “It can provide strong economic incentives.”

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