What drives conspicuous spending?
We chatted to international expert, Annamaria Lusardi, the Academic Director at the Global Financial Literacy Excellence centre, about her views on what drives the culture of conspicuous spending.
Lusardi explains that conspicuous spending is when we spend money to buy luxury goods for “status” and to elevate our social standing. Whether we like to admit it or not, we’re all guilty of buying things we don’t need, in order to keep up with those around us.
The culture of conspicuous spending is driven by daily messages from brands and institutions to buy goods and spend more. “We live in a world where the economy relies on people to spend, and so we are constantly bombarded by messages to consume,” she explains. “Things that we don’t really need become necessities because we are told over and over again that immediate gratification is normal.”
Another big contributor to our perception that it’s okay to live beyond our means is social media, mostly through the posts of celebrities and influencers. “In the past, the only way we knew about what people in other countries were doing, came from watching TV, notes Lusardi. “Now we have access to more and more information about our peers through Facebook, Twitter and more…” “We see others behaviour on a daily basis and think – ‘everybody else spends’ and so we should too.”
The biggest problem with this trend is that we tend to spend money to gratify our immediate needs, rather than long-term ones like buying a house or saving for retirement, which affects the economy as a whole because it means less savings and domestic wealth, and ultimately, “leads to a nation that is indebted and unhappy as they have no real future prospects”.