How Status Influences What We Buy
Content around personal finance seems to consistently preach the same core idea of spending less and saving more.
In theory, saving money is a very simple concept, so it often gets a lot of clicks, and sells a lot of books. Yet, in reality, spending behaviour hardly seems to change, with savings rates working towards all time lows, and average personal debt forever reaching all time highs. Whatever we think we’re teaching, it clearly isn't working.
These charlatans personal finance influencers make their money from selling easy, quick fix financial schemes, often in the form of a simple 'five simple steps' to get rich formula. As people generally prefer to be told what to do, rather than to critically think, they tend to be drawn toward these highly tactical, easy to implement solutions. They’ll avoid anything that imposes any deeper, introspective thinking on why you feel the need to spend on anything (non essential) at all.
Understanding why we feel the need to buy things we don’t need is one of the most critical first principles of personal finance, yet no one wants to talk (or think) about it. This model unpacks some of the principles behind why we buy, and what most people are unwilling to address, or come to terms with regarding personal finance thinking.
Humans have always craved respect
Throughout history, humans have repeatedly shown that one of the most important drivers for self esteem is the position within a social hierarchy, this stretches from tribe leaders, to British lords, to Balenciaga slide wearers who drive lime green, convertible Lambo's.
Often people ‘further up’ the social hierarchy own things most others can’t get, so others who are looking to attain the same level of respect see the blueprint and aim to copy it. This simply reveals that most of our wants to buy non essential materials simply boils down to an innate human insecurity; the craving for status (or respect) from our fellow humans.
Money buys status, and status buys ‘respect’
Status is mostly gained from owning what is difficult to attain, so whenever we acquire something non essential to living (known to an economist as a luxury good), we are effectively accumulating ‘status credits’ to add to our own status account balance. The more difficult something is to attain, the more status credits we are adding into our status balance. This account balance of our status bank is what we use compare to other people in the social pecking order, it drives so much of our behavioural choices, and particularly purchasing behaviour for materials that are not essential (or beyond the need) for survival.
This is particularly evident in western cultures, as there are large cultural sensitivities to revealing your bank balance to people, so buying ‘status credits’ in the form of expensive material items allows you to work around this insensitivity as a socially acceptable means to flex wealth.
The irony is, this cultural approach to hiding account balances is possibly contributing to extreme levels of personal debt, as observers are hidden from the amount of money loaned or borrowed to acquire these materials, which encourages even more borrowing in order to appear to own even more. This social credit manipulation / charade can put you in a game that can be financially crippling over in the long run.
So we’re buying things we don’t need for others, rather than ourselves
In essence, a core driver of non essential buying is the insatiable need to acquire approval from our peers, making our buying rates a reflection of our current social status state. If we feel like we need to boost ego or self esteem, we go out and buy more social status credits, if we feel like we’re happy with our social position (or opt out of the status game completely), we want for less material items.
So, the next time you’re considering buying something, as yourself what the value of the product really is, and if its a clear status inducing purchase, question if it’s really worth playing the status game. Sure, some non essential spending can provide a temporary hit of dopamine, or may boost someones personal brand that leads to greater outcomes (eg. monetary opportunities through fame) but the lasting positive effects of buying materials are often very marginal in their benefits.
Key takeouts for how social status influences our buying:
Status positioning is human nature: Understand that we are deep social beings with a heavy insecurity to be respected by our peers. Material ownership is a classic tool to attain this respect within many social circles and drives much of our buying habits.
Social approval greatly influences spending: Status signalling drives so much of our decision making, that it often leaves us with hardly enough money for ourselves. If unrecognised, it can lead to financially crippling decisions over the long run for very little reward. What we need to understand is that if we can’t display what we buy, then we’re far less likely to buy.
Understanding why we buy helps us question what we’re buying: Just like a new diet, if we don't fundamentally understand why we are changing something, then we'll ultimately slip back into our old bad habits. Understanding the driver behind most buying decisions helps you properly assess the true need of buying.