September 2, 2008
A group of economists recently published surprising research that suggests that conspicuous consumption is not an unambiguous sign of personal affluence. Instead, it's a sign of belonging to a relatively poorer group, says The Atlantic.
The researchers also found that there are major economic differences between the spending habits of different racial groups. For example:
- An African American family with the same income, family size, and other demographics as a white family will spend about 25 percent more of its income on jewelry, cars, personal care, and apparel.
- For the average black family, making about $40,000 a year, that amounts to $1,900 more a year than for a comparable white family.
- To make up the difference, African Americans spend much less on education, health care, entertainment and home furnishings.
Economists hypothesized that visible consumption allows individuals to show strangers they are not poor. Since strangers tend to lump people together by race, the lower your racial group's income, the more valuable it is to demonstrate your personal buying power.
To test this idea, the economists compared the spending patterns of people of the same race in different states -- for example, blacks in Alabama versus blacks in Massachusetts, and whites in South Caroline versus whites in California. According to their findings:
- All else being equal, an individual spent more of his income on visible goods as his racial group's income went down.
- In places where blacks in general have more money, individual black people feel less pressure to prove their wealth; the same is true for whites.
- An increase of $10,000 in the mean income for white households leads to a 13 percent decrease in spending on visible goods.
- A $100,000-a-year earner in Alabama does more visible consumption than a $100,000-a-year earner in Boston.
Source: Virginia Postrel, "Inconspicuous Consumption," The Atlantic, July/August 2008.
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