The Power of Conspicuous Consumption

The most obvious, and most common, way to think about spending money is that this is an individual decision. Within this broad framework individuals receive pay for the work they have done and then decide how much money should be spent on housing, on clothes, and on discretionary items. Some people spend carefully. Some spend less carefully. And some spend in ways that guarantee financial problems for themselves.

This simple and compact world view has been the basis of many editorials about thrift and forms the philosphical underpinning for many of the questions I get when I occasionally do media interviews on the subject. And this particular narrative does contain some truth.  No less than The Pope has repeatedly warned against the moral dangers of materialism.  And while thrift and materialism are not perfect opposites, my life experience suggests that those who spend their leisure hours emersed in activities other than shopping or plotting how to acquire their next posession are far more likely to handle their money responsibly — to spend and save in ways that are in line with their long-term economic well-being.  It doesn’t always work this way, but often it does.

But this view also has an important ommission that has practical implications for the way we think about spending decisions.  Consumption, and particularly conspicuous consumption, takes on added social meaning when an individual feels powerless relative to others in society.  A Hispanic woman, who speaks English with a Spanish accent, may believe that others who meet her for the first time will assume that she is poor and less educated. How might she compensate for this? She may choose to purchase a Louis Vuitton  handbag or drive a BMW even if she cannot really afford to do so. Expensive luxury brands tell the world “I am not as powerless as you think I am” and they appeal to some segments of the population who can least afford to purchase them.  Look in the mirror. Will people meeting you for the first time assume by your appearance and speech that you are likely to be reasonably successful at life? If the honest answer is “yes” it is easier for you to handle your money responsibly.

Is there evidence of this effect? Yes. A recently published paper,  Desire to Acquire: Powerlessness and Compensatory Consumption, provides some experimental evidence that feelings of powerlessness and the willingness to spend more money to compensate for that feeling are related. 

As we move forward with efforts to teach responsible spending and saving, to understand why some people are better at it than others, we need supplement the common moral narrative with the understanding that the psychological value of conspicuous consumption varies across individuals in accordance with their own self-perceptions of power and position. Lifting up those who feel powerless is more likely to change self-defeating spending behavior than recriminations that make them feel worse than they already do.