Conspicuous Consumption and Race: Who Spends More on What

Fashionable clothes, jewelry, flashy cars…They are all items of conspicuous consumption that gives their owners status on the streets. Such groups, such as blacks and Hispanics, seem to spend more on such emblems of success than others. Or is it just a stereotype?

Economists have long accepted the explanation for conspicuous consumption presented by Norwegian-American economist Thorstein Veblen, who coined the term at the end of the 19th century. Valuable possessions visible to all are signed as one’s wealth, success and status, Veblen said. Today most people recognize spending decisions are influenced by the desire to “keep up with the Joneses”.

To examine spending by racial groups, economist Nikolai Roussanov and his colleagues studied data collected from 1986 to 2002 for the Consumer Expediture Survey conducteed by the federal Bureau of Labor Statistics. Blacks and Hispanics spend up to 30% more than whites of comparable income on visible goods like clothes, cars, and jewelry, the researchers found. This meant that compared to white households odf similar income, the typical black and Hispanic household spent $2,300 more per year on visible items. To do that they spent less on almost allother categories except housing and they saved less.

Now when it comes to status versus fashion, the research indicates that spending habits are heavily influenced by deep-seeded yearning rather than, transient fashion following. That could make the behavior harder to change, assuming that education, healthand savings should come before shoes and jewelry. Roussanov states that spending on unecessary things is definetely not counterproductive. In many communities he said, it may be necessary to present a more affluent to compete for jobs and to have a social life.

This may expalin the chief exception that the researchers found in the data: Older people don’t spend more on visible goods, even if their incomes are the same as those of younger people who do. Perhaps it’s the wisdom of age or the fact that older people grew up in different times. But it’s more likely that older people, regardless of their community, don’t need status symbols as much because they are not out hunting for jobs or popularity.

That reinforces the conclusion that spending for status is a deeply entrenched habit amongb those who do it. Marketers advertising cars, clothes and jewelry have long known for the higher demand for flashier products in poorer communities. But the new insights might be useful to companies that are marketing mutual funds or other financial services that have yet to catch on in communities of color. The fact that saving and stock market participation is lower among minorities could be potentially linked to their greater spending on cars and other visible items.

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