This is the seventh and final of a series of emails that deal with our relationship with money. (You can read the other ones here). Most of this is based on the work of Morgan Housel, the author of The Psychology of Money.
7. Social aspiration spending: Trickle-down consumption patterns from one socioeconomic group to the next.
Economist Joseph Stiglitz once wrote: “Trickle-down economics may be a chimera but trickle-down behaviorism is very real.”
There is no such thing as an objective level of wealth. Everything is relative to something else. People look around and say, “What’s that person driving, where are they living, what kind of clothes are they wearing?” Aspirations are calibrated accordingly.
Morgan spoke with Wired magazine founding executive editor Kevin Kelly last week. He brought up an interesting point: If you want to know what lower-income groups will aspire to spend their money on in the future, look at what higher-income groups exclusively do today.
European vacations were once the exclusive playground of the rich. Then they trickled down.
Same with college. It was once reserved for the highest income groups. Then it spread.
Same with investing. In 1929 – the peak of the Roaring ‘20s bubble – five percent of Americans owned stocks, virtually all of them the very wealthy. Today, 58% of households own stocks in some form.
Morgan goes on to say it’s the same with two-car households, lawns, walk-in closets, granite countertops, six-burner stoves, jet travel, and even the entire concept of retirement.
Part of the reason these products spread to the masses is that they got cheaper. But the reason they got cheaper is because there was so much demand from the masses – hungered by their aspirations – that pushed companies to innovate new ways of mass production.
People like to mimic others, especially those who appear to be living better lives. Always been like that, always will be. Do you agree or disagree?
To Your Prosperity,