The Upside-Down World of Conspicuous Consumption

Conspicuous consumption is paradoxically biased towards poorer income groups. Research offers some lessons on where this trend may take us.

In 1899, an American economist by the name of Thorstein Veblen released a book entitled The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. In it, Veblen focused on some distinct behavioural characteristics emerging in the nouveau riche (in this case, a rich social class that had emerged during the Second Industrial Revolution).

Perhaps the best known of these behavioural observations was the idea that many in this social class were buying luxury goods or services for the sole purpose of displaying economic power. He termed this idea “conspicuous consumption”:

“Conspicuous consumption of valuable goods is a means of reputability to the gentleman of leisure. As wealth accumulates on his hands, his own unaided effort will not avail to sufficiently put his opulence in evidence by this method. The aid of friends and competitors is therefore brought in by resorting to the giving of valuable presents and expensive feasts and entertainments […] The motive is emulation – the stimulus of an invidious comparison which prompts us to outdo those with whom we are in the habit of classing ourselves.”

In the late 19th century context, Veblen had directed this observation exclusively at a rich elite. But as prosperity and access to goods and services spread across the classes in the subsequent century, conspicuous consumption became an activity for the masses.

Materialism took off. Flaunting wealth became synonymous with economic progress. The term “Keeping Up with the Joneses” was born.

Our possessions sought to maintain or even attain a perceived status. And they still do.

The Evolutionary Foundations of Conspicuous Consumption

Truth is, all this is only natural.

Across the animal kingdom, there is a consistent truth: we display markers of fitness that hint at our suitability for reproduction.

Birds shake their tail plumage and chirp away in their own song contest. Black bears fight for mating dominance. Butterflies dance and flutter before releasing pheromones that carry unique information on their fitness for reproduction.

And then there is us. As we have progressed as a species, our fitness markers have become more complex. The priorities remain the same – physical suitability and security – but the dial has logically shifted with the overall benchmark of economic wellbeing.

And so, we innovate. We find new ways to display status and compete. We consume to demonstrate our economic security and wealth.

Nowadays we don’t so much conform with Veblen’s vision of grand feasts and obscene displays of ostentation. Instead, we go premium with our signalling. We go five-bedroom instead of three-bedroom (which was more than enough). We go Apple instead of Huawei, Ralph Lauren instead of Primark.

And we needn’t invite the whole world into our homes to display these fitness markers. We can do that from the palm of our hand.

Conspicuous Consumption Is a Phase

Except, conspicuous consumption is a little more nuanced than that.

In the late 2000s, University of Chicago economists Kerwin Kofi Charles and Erik Hurst started to look at the wealth gap between races in the United States and came across something rather interesting. The data suggested that far from being a signal of personal affluence, conspicuous consumption demonstrated belonging to poorer groups.

The research found that all else being equal, individuals spent more of their income on visible goods as their racial group’s income went down. In other words, regardless of race, proportion of expenditure on visible goods was negatively correlated with income. The richer the income group, the less important visible spending becomes.

We might infer from this that conspicuous consumption is more about deterring the perception that an individual is poor than providing the perception that an individual is rich. Visible spending seems to be far less important to the rich. Quite sensibly perhaps, most rich people don’t wish to draw excessive attention to the fact they are rich.

These findings lend themselves usefully to the argument that conspicuous consumption is a phase on the economic ladder. It may partly explain why emerging economies continue to show such strength in luxury goods and why poorer communities within developed economies face a slower road to wealth.

Signalling wealth is an expensive, wealth-stunting game in lower income brackets. Avoiding costly status games is an important step on the way up.

Less About Wealth, More About Identity

Of course, that is not to say that those who are better off aren’t engaged in this game at all. They are perhaps simply fortunate enough to avoid the intense need to fend off perceptions of poverty. The signals therefore swing partially away from the need to display wealth in favour of displaying fitness markers in our identity.

Marketeers see this in the tough battle into premiumisation in developed markets as consumers aim to distinguish themselves by brand. But perhaps the most significant trend is our move to experiential consumption.

Research shows that people tend to overestimate the long-term happiness they get from material purchases and underestimate the long-term happiness they get from experiences. Consumers are starting to catch on.

On balance, the shift to experiences is likely to be a good thing. But experiences aren’t immune to the perils of conspicuous consumption. Communicating with others about our experiences makes us feel good, but the ubiquitous use of social media can turn this into an experiential game of keeping up with the Joneses.

A relatively recent study published in the International Journal of Marketing Research suggests there are two main motives for conspicuous consumption: (1) to display status and wealth, and (2) to demonstrate identity. The latter seems to play a more influential role with experiential purchases such as vacations.

Instead of flaunting our economic status, we are more interested in flaunting who we are and the unique things we do. Communicating our experiences serves to communicate our identity. Experiences and the communication of experiences are the tail feathers of the middle class.

Avoid the Zero-Sum Status Games

Where does this leave Veblen’s idea as it was originally conceived?

Will we all stop flaunting our wealth? No. Will we express it in a different way? Absolutely.

Most research seems to suggest that conspicuous consumption (as Veblen defined it at least) is a phase in economic progression. But the idea we will collectively stop using wealth to communicate status is for the birds.

My advice: avoid the zero-sum status games wherever possible. Accept that marking our fitness is a natural feature of our species but do things of intrinsic benefit to you. Get fitter. Get smarter. Focus on meaningful relationships. Pursue experiences over unnecessary materialism. Grow your wealth but don’t flaunt your wealth.

Do the things that make you and your loved ones happy, and not necessarily others. Do this and you’ll mark yourself out without even trying.

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