Sunday, July 13, 2014

Trickle Down Consumption

Trickle Down Consumption
I was driving to a kickball game the other day, when I heard a cool story on Marketplace about those little white oval stickers with two big letters that people sometimes put on their bumpers. You know, "GB" for Great Britain, or "F" for France, stating the places the driver has visited, or where he's from. The stickers were created by the UN back in the 1940s, in Europe. There were so many drivers from other parts of the world that the United Nations created the stickers as an easy way to identify the country the driver was from. The reporter notes that, "in the US, they became a status symbol: EH for East Hampton, or AK for Nantucket. Secret codes that said the driver of this car lives or vacations in America's most elite resorts." These days, the stickers are a way to brag about the cool places you've been, or a flag you can send up as a beacon, hoping others from your home town might be living in this new place with you.

Still, there's a bit of an elitist attitude with these decals. When we tell every passerby where we have visited or lived, that says a little something about our economic status, too. We can afford to vacation in this sort of place. We have the means to live in this city. The stickers themselves, the reporter believes, are not a huge deal. But they are indicative of an economic trend, says Cornell Economics Professor Robert Frank: outward, unashamed displays of wealth are becoming more common. The very rich are building much larger, more grandiose homes that tell any passerby a little something about the denizens' lot in life. Expensive jewelry that would have seemed gaudy or in ill taste in decades past might now be completely acceptable. And, of course, it's pretty common brag to anyone who cares to see about the prestigious school your child was able to get into via a bumper sticker, too.

The bragging might not be a huge deal, but Frank notes that this outward display of wealth "shifts the frame of reference" for the class right below them. What passes as a normal house for someone of this income level has just gotten a bit bigger. So when an upper middle class homeowner sees someone in a nicer part of town build a newer, bigger house, he is now more likely to end up buying a bigger, showier home, too. The people just below that economic class then do the same, and so on down the income ladder. The net impact is that everyone ends up spending more of their income (and saving less) as a result of the visible consumption of the very wealthy. While the show doesn't use this term, the trend they are describing is "trickle down consumption", coined by Marianne Bertrand and Adair Morse. All across the income spectrum, when we see people just above our economic group spending more, we spend more, too.

From Chrystia Freeland's article: "There has been extraordinary growth in the 1 percent," Frank said. "Ordinary people don’t want to emulate them, but what happens is that the people who are next to them want to emulate them, and so on. That social cascade ultimately explains why the middle-class home got 50 percent bigger in the past three decades."


At first I was dismissive of the findings. Sure, the spending of the wealthy might result in additional temptation for all the rest of us to spend more too, but it's jus
t one more systemic driver for over-consumption. There are myriad temptations to spend out there in the world already -- what's one more? And if I can fight daily against an army of marketers trying to separate me from my money, can't I do the same when I see my neighbor building an addition? Aren't we all responsible for our behavior, financial or otherwise?

But then I remember that we are not completely rational beings. We might consciously choose a certain fraction of our behavior (I still remember that day in 2006 when I said "no" to that extra slice of pizza) but a lot of our behavior is on autopilot, driven by habit, or emotion, or desire, and maybe the actions of those around us, too. We are impacted by our coworker's decision to buy a new car, or our cousin's 4,000 square foot home, or our friend's latest trip to Europe. We hang out with these folks so, at least on some level, they are our peers. If we really are the average of our five people we spend the most time with, I wonder if we can just average their spending, too.

But let's not end this post on a powerless note. I bet this trickle down consumption might work for other behavior as well, like saving or investing, if only the subjects were less taboo. For whatever reason, it's a lot more acceptable to show off a $500,000 home to total strangers who happen to be driving by, than it is to talk about how you amassed $500,000 in retirement savings to close friends and relatives. If we shared our investing behavior with our peers as openly as we share our consumption, I wonder if good financial behavior might trickle down, too.


**Photo is from amelienadine33 at Flickr Creative Commons.

53 comments:

  1. Hmmm... I guess it all comes down to what things people hold in esteem. I mean, in my perfect world people would be trying to one up each other for things like how much garden produce they created, or how early they retired, or how many feral cats they've rescued! :-) Actually, now that you mention it, CatMan and I spend a lot of time on Denver's bike paths during what is usually considered "working hours." We often run into other cyclists and spend a bit of time chatting with them. And when people ask what each of us does for a living and find out that neither one of us is a "wage slave" they're pretty darned jealous!

    Seriously though, I think the most powerful tool we have against this sort of thing is to hold ourselves up as examples of people who have found happiness through a different path. I mean, status symbols only work because people agree that they are somehow valuable. But if the universal response to having a big house was "EeeGads, what a waste of time and energy. Can you imagine having to vacuum all of those rooms each week?" or something like that, perhaps people wouldn't feel quite so "tempted" to move on up the spending ladder.

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    1. I like that approach, Cat Lady. We get to decide what's really cool, or elite, or admirable. Of course, what our peer group decides is cool does have an impact too. But you're right: we get to influence the group, maybe as much as it influences us.

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  2. I knew I hated those stickers (and the 26.2 ones and the ones with the stick figures!) for a reason. =) And I think it's the same reason I try to buy clothes without any outward logos on them.

    One thing that's interesting is that the lower down on the status tier, the more brand logos that tend to appear on the clothing (at least up to a point). Think about Old Navy, Gap, and Banana Republic. All the same company, but which has the most logos on its clothing? And for Tommy Hilfiger, you can purchase Oxford shirts at a place like Macy's that don't have their logo on the front, but as soon as you step into an outlet store, every shirt has at least a little Hilfiger logo on the front. It's definitely an element of "striving" and "proving" you've made it to the top.

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    1. I hadn't thought about the branding being more prevalent at lower income levels, Mrs. Pop. I suppose if you were really secure in your economic state, you wouldn't feel as much need to advertise your success.

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    2. As someone who sports a 13.1 on my dated Hyundai Sonata let me speak mildly in defense of it. In the same way someone might point out they're a biker with a "Share the Road" sticker, I think it promotes a healthy lifestyle and past-time. I suppose it could be viewed as "striving," but I also think it identifies people with a common interest and I always feel a bit of community when I see one.

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    3. I hear you, Janeen. And the stickers themselves are just kind of the lead in -- they're innocuous, and I'll admit that I have one on the back of my car. At least for the next few hours...I think I kind of have to remove mine after writing this post.

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  3. I think it's part of the herd mentality. But then I found PF blogs and the herd here certainly moves in a different direction. I think the metric to follow is the age of retirement! Alas, we will not be part of the young crowd, but are working towards our retirement in the next 5 years at the ages of 65 and 60. If only I knew then about how trickle down consumption.

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    1. That's a good idea of a future post, debt debs: the PF herd mentality.

      I still think retiring at 65 and 60 is awesome. I know some folks who want to retire then, but won't be able to.

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  4. Yep, it's just the 'keeping up with the Joneses' mentality. It's definitely the reason houses have gotten so large and everyone's expectations are on the rise. Unfortunately, those upgrades come at a cost to all of us since people at the bottom and middle aren't really saving much.

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    1. Yeah, that stat about the average home size doubling is kind of a shocker. The folks at the very top can probably deal with the over consumption without too much trouble. But the impact on middle class and lower class savings rates is troubling. I wonder if the trickle down consumption is a real driver of that, or just one more ancillary contributor.

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  5. I always wondered what those stickers meant!

    I'd be interested to find out how many of the "rich" aren't very showy about their money. My guess is that most small business owners that built something out of nothing aren't that showy because they know how hard it was to get to where they are. Of course that doesn't mean anything to the lay person because they have the rest of the "rich" to show them how to live it up!

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    1. True! The Millionaire Next Door argues that most of the wealthy are pretty frugal, and would blend right into their middle class communities.

      Maybe the better distinction might be that 'high earners' are over consuming, rather than the 'PAW's that are described in that book.

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    2. I know a number of wealthy people -- especially farmers -- who do not splay their wealth about. I know successful small business people who do not either, because they are grateful for the many middle class people who supported their businesses along the way and trusted them with their hard-earned money. It's not that they don't use their money, or have fun with it, but when I hear them talk about it they don't do it in ways that are directly aimed at conspicuous consumption. They don't make a point of it. That don't talk badly of people who are poor. And, they're generous (giving to charity, leaving decent tips, offering help). Many of these people grew up in modest circumstances.

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    3. That's a good distinction. I think we might need to differentiate between high earners and the wealthy.

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    4. The Millionaire Next Door definitely makes the distinction between high earners and the wealthy.

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  6. Another awesome post, DB40. I saw this all the time in the affluent suburb we used to live in, and honestly, it's quite scary how easy it is to become addicted to wanting to be among the "elite". We did fairly well, probably better than most, at not following the crowd, but we felt the pressure - and "failure" for choosing not to have, do, own - every single day.

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    1. Thanks, Laurie. I really wish I'd spent a little time writing about that idea of 'failure' or not measuring up to your peers as a reason for why people might buy more house, car, etc. As with a lot of our decisions, they're not rational...but they are still valid because, hey, feelings are valid.

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  7. I hate all those stickers so much. My pet peeve are the ones for the stick figure families - they're just silly. But to each their own... whatever floats their boat.

    That being said, I'm used to rich people not being that showy. Or I have a different definition of being rich. The fact that you have a Jaguar and have a mansion-sized house suggests (possibly incorrectly) that you're wealthy... why throw a sticker on your pristine car. I think this is more about those that are reaching - that like to flash what they think they have.

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    1. You might be right, Alicia. Those outward displays might more commonly be exhibited by people trying to prove they've made it, when they really haven't. Still, it might have the unintended consequence of cajoling your neighbors into doing the same...and on down the line.

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  8. Interesting. With all avenues of lifestyle inflation, I think it's entirely too easy to fall victim to thinking that X expensive item is the new normal. You make such a great point that it's more socially acceptable to flaunt wealth rather than savings. I'd never thought about in quite those terms, but how very true!

    I think people would be aghast if we had a bumper sticker on our 18-yr-old minivan that read "We save 82% of our income! Join us!" Maybe we should start a trend...:)

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    1. I love the idea of a frugal sticker set, Mrs. Frugalwoods. Send me an email and maybe we can build a little cottage business.

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  9. I have to agree with an earlier comment about the herd mentality. That's why so many people watch American Idol or Survivor instead of a business show (and then discuss it the next morning at coffee break). Or why people jump into the market when it's reached its' peak and sell when it bottoms out.

    I have read some of Robert Frank's books and while his theories are interesting and possibly accurate, his bias against consumer spending, in my opinion, has a darker side. He feels that if we spend less, there is more money available for the government to spend fixing roads, inspecting meat etc., and while no on would complain that these are worthy expenditures, he doesn't explain how the government gets this money that you and I have saved by not guying a new grill. I think what he is actually advocating is confiscation of wealth by the government which, IMHO, is the first step to enslavement. Just my two cents worth.

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    1. That's interesting about Frank's perspective re: government. Kind of scary stuff. But I think we can agree that it'd be better if we saved more (and, hopefully, didn't just hand that over via taxation).

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  10. I've always wondered about those stickers...and I work out on Long Island so I do see the Hamptons/Montauk stickers. It seems the majority of people like to brag and show off. Facebook makes it even worse...it's like a site to show off and brag about where you've vacationed and what your kids are doing. I'm kind of the opposite and subscribe to Financial Samurai's theory of stealth wealth. I really don't want people to think I have money...I think that's rare though, except in the pf community

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    1. Stealth Wealth! I'm with you on that, Andrew (and have since stopped posting our Net Worth & Budget Porn updates). Better to fly under the radar.

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    2. Wait I said stealth wealth for the other folks not your fellow pf bloggers! Aww I will miss the budget porn updates!

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    3. I kind of miss writing them, too, as they were always an easy post that people seemed to like. Now I actually have to think of post ideas, do research...it's a real drag.

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  11. I'm torn on the issue - I don't mind the "look where I've been" stickers throughout Europe - it can be dirt cheap to go visit those countries (or not!). So those may not be quite as boasting as some of the other outward displays of wealth. When you have such stickers on your backpack, it is a conversation starter in airports and train stations...
    But showing off wealth seems to be a "rookie" mistake. Almost all of the lottery winners you hear about - what's one of the first things they do? They go out and buy some kind of status symbol - whether that's a large house or luxury vehicle or what have you. Where as the PAWs in the Millionaire Next Door almost never have status symbols (as mentioned above).

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    1. I'll admit that I have one of those white stickers on my window right now, showing where my wife and I met. But I think I'm going to take it off the car tonight. :)

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  12. Interesting take on the stickers - I mostly just viewed them as perhaps conversation pieces (like when people sew flags on their backpacks), but I can see how it can have an underlying socioeconomic impact in having them. I tend to think it's part of American culture especially with being so showy, but that's an interesting take on what can happen if we somehow were able to communicate about saving/investing. Will you be creating any of those stickers any time soon? :)

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    1. I agree that those things are pretty harmless overall. But they might be indicative of a larger overconsumption trend that's pervasive, you know?

      And yes, I think I'm going to try to make some stickers and mail them to folks who want them. I figure if I can make some for under $100, I can just mail them out for free.

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  13. It's interesting how consumerism works and of course keeping up with the Jones'. I went to a friends house and the house was very nice and updated in places our home was not, I have been talking and thinking about different upgrades that we should look into. Our house is first and foremost an investment property which my wife and I talk about before any upgrades/cosmetic is done, but it's amazing how influenced one can be from those around you.

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    1. Yeah, funny how someone else's new countertops and shiny appliances make our own seem dated. I think my refrigerator is older than I am, but it doesn't bother me until I head over to my friend's house, and see their fancy model that dispenses water and ice...

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    2. We live in a nice house that we built ourselves, but it is the smallest "cottage" on a block with much larger, more expensive houses. We also built it 10 years ago, and my friends' house next door is about 7 years ago. It's beautiful! They spent years thinking about it and designing it, paying attention to every detail, and custom designing everything with a level of detail that I'm not sure I have patience for. When I go over there, though, I often find myself saying, "Gee I wish I would have done that" (e.g. used round corners on the drywall instead of flat, installed stainless steel instead of bisque, heated my garage and expoxied the floor...) Then I come home and tell my husband, "Gee, it's not like this place is a dump!" We had different goals, a more limited budgeted, and built the house that meets our needs and continue to update it and keep it in repair. Still, I'm shocked at how this creeps up on me because I've never thought of myself as "keeping up with the Joneses..."

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    3. I think we're all susceptible to these things, which is why the trickle down consumption happens. We have rational plans and needs and try to act on them...until our peers show off their cool stuff. I don't know if we can really get away from it. We could do well to rethink what counts as 'cool' though.

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  14. Interesting post. I suppose we all show off our earning or accumulation success through our consumption; some more than others. I doubt that people in a low cost of living area would be impressed by the little 1370 sq. ft. house we live in. But to those who live in the same high cost of living area, our house and nicely landscaped yard says we are doing quite well.

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    1. Good point, Bryce. The comparison matters a lot more locally than it does across distances.

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  15. Someone asked ja rule why they would spend 100k on wearing jewelry out and he said at the club no one can see your bank account but they can see your jewels. As long as we do just as well or better than our peers material wise and not bank account wise were happy.

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    1. I remember seeing that research, Charles! There's something true about happiness being found in doing better than your neighbors and peers. But that's a zero sum game, or worse, I guess.

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  16. I like your theory! It's kind of like the "association" theory as well. The more you associate with others the more likely you are to take on their habits. If you hang out with people who are really into working out, you are more likely to work out. If you hang out with people are really frugal, you're more likely to be really frugal.

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    1. I can't take credit for the theory, but thanks all the same, David! I really do feel like we are impacted heavily by the people we choose to spend most of our time with. The best action we can take is to be intentional with those decisions, and pick the right sort of folks.

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  18. "For whatever reason, it's a lot more acceptable to show off a $500,000 home to total strangers who happen to be driving by, than it is to talk about how you amassed $500,000 in retirement savings to close friends and relatives."

    Here here. I sometimes wish that we had our investment totals stamped on our foreheads. It would shut down a lot of the conversation and redirect envy in a way that might serve the afflicted in a more productive manner.

    Intrinsic rewards are so much more powerful but for some reason the human animal has to learn the hard way that extrinsic rewards are fleeting.

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    1. "It would shut down a lot of the conversation and redirect envy in a way that might serve the afflicted in a more productive manner."

      That's brilliant. For all the poor financial decisions that our emotions lead us into, wouldn't it be nice if they nudged us towards good ones, too?

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  19. I like the way you ended things on a positive note. That's mostly what I just wrote about! I can (mostly don't want to) believe how widespread trickle down consumption can be. It's awful how we feel the need to show up our neighbors. Why can't we all just simply be? I guess life would be too easy that way. Like Andrew, I've seen my fair share of "MTK" and other stickers. I never liked them!

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    1. I hear you, EM -- life would be better in a lot of ways without the competition. I think it's hard wired into us though. We have a need for status, and that often comes at the expense of others.

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  20. I heard that story, too! I was driving back from a conference. So not as much fun as kickball. I have to say...I've never equated those stickers as symbols of hierarchy, but the ensuing story was interesting. And I love the last part...we've actually seen a lot of that in our own lives. Not so much with investing, but since the husband went back to school, a lot of his friends are showing some interest in doing the same thing. Which is kind of amazing to watch.

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    1. That's rad, Femme Frugality. I've noticed the same thing with my peers. If a friend or coworker accomplishes something, I think, "Hey, I know that guy. I can do what he does."

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  21. I love this concept DB40. It’s fascinating (and kind of scary) to think how much of our behaviour seems to be controlled by forces other than our own rational decision making.

    I love the idea of putting positive investing / frugality behaviours on display, but I think you’d always have the same issues of people being dissatisfied as they continue comparing to people who have it ‘better’. Although as you and Femme Frugality just highlighted, there might be many others who find inspiration in the more constructive accomplishments of others, particularly people you’re closer to. It’s been said many times, but it’s amazing how much influence the people around you have on you, sometimes without you noticing.

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    1. Right, that dissatisfaction is always going to be there so long as we compare where we are with our stuff, what we've got going on, etc. But I wonder if we can use that competition/dissatisfaction to our advantage, to nudge people into good financial decisions instead of bad ones.

      Like, if I start bragging about our financial independence, or rental properties, or maxing out our 401k, will the neighbor who's doing all those upgrades slow down on that stuff, and invest more?

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  22. I always figured that I would rather have a fat 401K account, than a fancy home or car.

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  23. Super smart piece, DBF! I never really paid much attention to those stickers, but you're right that they carry a lot more meaning than it may first appear. I suppose this pressure to buy upward beyond your real financial means is not only normal, but has always been with us as part of being human. Rather than shame people for their sometimes thoughtless purchases, we could almost praise them for the million other things they resisted. It absolutely defies human nature to discipline yourself into financial independence so good job for anyone who can resist the pressure to get there.

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  24. It's funny you mention the decals... I think the "0.0" decal is hilarious, personally. That said, my kids' school uses them as "spirit wear" for your car. My kids get a kick out of seeing one in a random parking lot: "Hey, look mom! They go to our school!" :-)

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