When people spend money, their particular decisions are often influenced by the wish to signal wealth and attain interpersonal status. This insight is not completely new – even Adam Smith, in the Wealth of Nations, gripes that his contemporaries spend an excessive amount of on “status goods” that are not a necessity of life, and that they most likely can’t afford.
Social signaling motives within consumption seem to be present in many different economic settings, and may in fact be therefore widespread that they can be linked to bigger economic phenomena, such as inequality plus persistent poverty. Studies using home surveys show, for example , that the bad around the world spend a strikingly big share of their income on visible expenditures, which may have negative effects for asset accumulation, household indebtedness, and investments in education. Exactly the same pattern has been shown to hold for ethnic minorities in the Unites States – so much so, that a recent study argues that differences in conspicuous consumption may account for as much as one third of the wealth gap between Whites and African Americans