woman barista

Tip-flation: Has Paying the Bill Gone Too Far?

As inflation raises prices across the board, an old American habit is becoming more costly to keep up – tipping. 

Although not as prevalent in many parts of the world, like Europe, Australia, or Japan, tipping is deeply entrenched in the US hospitality industry. It has long been customary for most consumers to tip service jobs. Yet the practice has evolved in recent years along with broader changes in the gig economy and is ballooning across various sectors.

Great for service staff, this “tipflation” poses a conundrum for American consumers. Many who find themselves questioning the necessity of near-constant gratuity payments, feel like things have gotten out of hand.

Consumers are being asked to tip more frequently for services that once did not require gratuity payments. Picking up an iPhone from a Genius Bar may even soon become a tippable affair. 

Unionized Apple workers are demanding their company facilitate tips for service received at Apple Stores. “Pre-tipping” has also become widespread, whereby tips are asked for even before a service has been delivered, pressuring customers to pay extra upfront lest they receive shoddy service for refusing.

Yet discontent is stirring, with many consumers succumbing to so-called “tipping fatigue.”

What is the state of tipping today? Financial advisors offer their expert opinions on the matter and discuss whether the surge is manageable for most.

Through the Roof

In both frequency and scale, tipping is on the rise. According to data from digital payment platform Square, gratuity payments received by restaurants in 2022 were up over 15% year-over-year for both full-service and quick-service establishments.

Tips requests are popping up everywhere, with the largest increase occurring on digital payment platforms. According to Square, roughly three-quarters of all remote cash transactions featured online tipping in February this year (up from around 43% in February 2020).

The rates expected from people are also rising. Though tipping rates tend to vary between individuals and locales, long-established standards for tipping rates have been broken in recent years.

The classic 10% tip from the post-war period may be history, but studies show that even the former 15% rate, standard in the 1980s, is long gone. One survey by Creditcards.com from last year found that an average of 20% is becoming the norm for most consumers. 

Tipping rates vary considerably across income brackets, and those with higher residual income can afford to tip at higher rates. According to Creditcards.com, households with incomes under 50,0000 typically tip 19%, while those making between $50,000 and $99,999 annually tip 21.5% on average. Six-figure households tip a whopping 26% surcharge.

Tap to Tip

Innovation has changed how tips are processed. The wave of digital payments unleashed during the pandemic has brought forth a raft of new technologies that boast “swipe to tip” features, making tipping more commonplace than ever.

“Since the pandemic’s start, the tipping culture in the US has drastically changed. Many restaurants and businesses have moved to a cashless system for processing tips to protect workers from potential infection,” says Joey Bernstein, CEO & Founder of Bernstein Wealth Management.

“Contactless delivery services and digital payment platforms have become more popular among customers,” he adds. “This shift away from traditional tipping methods has meant that tips are distributed more evenly between servers, cooks, delivery drivers, bartenders, and other hospitality workers who rely heavily on gratuities.”

“I think tip-flation has had a polarizing effect,” says Tim Uihlein, Partner and Managing Director of Vincere Wealth Management

“It’s caused some people to be more generous, for instance, giving 10% to the barista who only poured your coffee after you ordered it through an app. Others, though, have become turned off by the incessant requests, hitting the ‘No thanks’ tip button on the screen before even providing a digital signature with finger swipes.”

Blaine Thiederman, MBA, CFP, and Financial Planner For Tech Professionals at Progress Wealth Management, is one of those who has been irked by the increase in tipping requests.

“Since the pandemic, I’ve started to view tipping in a less positive light,” he says.

“Paying a tip in a grocery store to a cashier, a coffee shop to a barista for getting you black coffee, or to a food truck for serving you what you ordered feels excessive and unnecessary,” says Thiederman. “What should be happening for roles that don’t require a higher level of customer service is the stores should just pay these people more.”

Although tipping is an essential source of income for underpaid members of the service sector, such as wait staff, paying extra may only be necessary for some services. Customers are under no legal or moral obligation to tip at a level beyond their means. Just because a tip is requested does not make it justified.

When it comes to paying a little extra, consumers need to consider their budgets as much and make sure it is something they can afford, particularly those who are investing in real estate and have a significant mortgage, household debt, or other financial burdens.

Josh Dudick

Josh is a financial expert with over 15 years of experience on Wall Street as a senior market strategist and trader. His career has spanned from working on the New York Stock Exchange floor to investment management and portfolio trading at Citibank, Chicago Trading Company, and Flow Traders.

Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business. He has held multiple professional licenses during his career, including FINRA Series 3, 7, 24, 55, Nasdaq OMX, Xetra & Eurex (German), and SIX (Swiss) trading licenses. Josh served as a senior trader and strategist, business partner, and head of futures in his former roles on Wall Street.

Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently holds areas of expertise in investing, wealth management, capital markets, taxes, real estate, cryptocurrencies, and personal finance.

Josh currently runs a wealth management business and investment firm. Additionally, he is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses professionally.