Before we start, thank you Financial Post’s Ora Morison for featuring me, Money Rabbit & Young and Thrifty in this article: Young bloggers look to spark fin lit passion 🙂
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A reference to “Status and Poverty” from Journal of the European Economic Association, April/May 2010, Vol. 8, No. 2-3, Pages 413-420 stated:
…poor families that climb up the social ladder by the accumulation of wealth engage in conspicuous consumption that prevents them from escaping poverty.
Via Bakadesuyo
At first you might think: Wait, they’re earning more but they’re still in poverty?
Yes, if you consider that even if you earn $100,000 a year but you spend it all, you are no better off than when you were making $10,000 a year living paycheque to paycheque.
The only difference is you can easily cover your basics, but without savings, there can be no wealth.
It’s an interesting statement from the study but unfortunately, they don’t detail out what the reasons are in the blog post above.
So without reading it, it could still make for a good discussion.
(No we don’t have more details and facts, but we can still talk!)
Credit
ARE THEY “WASHING THE POVERTY” OFF?
Perhaps it’s because they feel the need to “wash the poverty” off themselves by covering their outsides with jewels, drive fancy cars, live in big houses.
I want to point out that it doesn’t mean just because you came from poverty, you’d follow this path of conspicuous consumption if you made more money.
I daresay anyone feels like this sometimes, even middle-class background kids like myself.
Many of us, regardless of our previous money situation, may at one point or another, feel ashamed for what we can’t afford to buy.
They say even single-digit millionaires are jealous.
Of who? Of other double-digit millionaires. Or of billionaires of course. 😛
OR MAYBE THEY JUST HAD UNMET DESIRES?
Or maybe they simply just wish they had those things before, and are finally buying them to satisfy their unmet wants and desires.
When anyone has more money, the instinct is to spend.
At least.. my instinct was to spend.
I had to fight and work against fighting that instinct for many years. It isn’t easy but it’s the right thing to do for my future.
So when I got my hands on some money the first time I started working, I was stoked.
ALL THIS MONEY!!!!
I admit, I did spend it. A bit. I went a bit overboard but then my rational side took over and has controlled the budget ever since.
BUT THE GAP MIGHT BE LARGER
But I think for someone coming from poverty, the gap between poverty to having more money, might be larger.
I think the change would be larger too, and perhaps much harder to cope with?
Just thinking about it, if I had lived with struggling my whole life to pay for the essentials, and then I suddenly had all of this room to breathe financially, I wouldn’t put it past my old self to have gone crazy in the shopping center to make up for lost time.
I wouldn’t be so smart and rational to immediately think: Gee I lived in poverty, let’s SAVE all of this extra dough so I never go back there again.
Read: Generational Poverty — what is your motivation to save?
OR MAYBE PERCEPTIONS OF LIFESTYLE ARE OVERRATED
Before I started reading about personal finance I believed all of the following:
- Being middle-class meant you had to have a house and a mortgage
- Debt was a normal part of life, even for student
- Debt wasn’t a big deal for people who wanted a good life
- People who made $50,000/year had 1 home, and 1 car
- People who made $100,000/year had 2 homes, 2 cars, lots of bling
- People who made $500,000/year had homes overseas
- People who made $1 million/year flew in private jets & lived in castles
- People who make a lot of money never worry about money
You get the idea.
I had no idea what people really spent, let alone what I spent.
I just assumed people who were rich, never worried about money, had everything, were always happy…
I wasn’t in touch with what was realistic. I had been assuming so much, that it seemed shameful to have less than what I was supposed to have, given my “status”.
At my $65,000 income bracket, people would tell me:
- Why don’t you drive a car, any car? You’re making good money.
- Why don’t you buy a home? You have the money.
- Why don’t you go on a vacation twice a year? You have the money.
- Just pay the minimums on your loans & enjoy your money
What they also knew was that I had debt, but they figured I had my whole life to pay my debt, and even after paying just the minimums on my debt, I’d have plenty of cash to “burn”.
This was true, but it isn’t the best way to see things.
It’s like telling someone to just pay the minimum on their credit cards, and to continue for the next 10-20 years.
Paying the minimums was the norm for many, because we just simply didn’t do the calculations of how much interest we would have been paying over time.
So there you go.
My unofficial, probably totally off the reserve observations and half-minded theories.
Update: Meg from World of Wealth (love her!) wrote a response to this post.
Just a girl trying to find a balance between being a Shopaholic and a Saver.
I cleared $60,000 in 18 months earning $65,000 gross/year.
Now I am self-employed, and you can read more about 
My husband and I were raised really poor. I was poor, he practically lived in a cardboard box. Now he makes about $140,000 a year and with his bonuses he may make $200k or more this year. I have a couple of comments. I think some people (not me) are ashamed of their origins and go overboard displaying their wealth because of their insecurity. My issue is, I assume all the money will evaporate and I will go back to poverty. No amount of money can convince me otherwise. So I have a psychological insecurity that I cannot shake. You would never know to look at me that we make decent money. I just wear jeans, sweats, etc. I don’t want to get used to living lavishly since, as I said, I assume the money will disappear.
I think you’re the opposite 🙂 You’re one of those Millionaire Next Door
types! That’s actually very cool (to me) and far better than flashing money
around.
Hmmm…. A lot of broad generalizations here. I know people who grew up poor and did pretty well for themselves; they still live frugally or at least not conspicuously. And I know people who grew up rich and are doing just fine; they still live frugally or at least not conspicuously.
As a blue-collar kid who fell into the life of a society matron, though, I can assure you that in my case I felt VERY uncomfortable in that social niche. Though I’m well educated and well traveled, I always felt out of place with wealthy, stylish, socially accomplished people, especially women. I just didn’t know what to say to them. And clothes…augh! Going into the boutiques and upscale department stores where those women shopped made me feel like poor white trash. The sales staff peered down their noses at me, and I had no idea what clothing to pick, what not to pick, and why.
Twenty-five years among the upper 3 percent of America’s earners left me no more comfortable with that bunch but less than comfortable with the kind of folks I grew up with. I want nicer things and I want to live in a nicer neighborhood; I just don’t want to have to be “nicer.” Guess you can’t take the trash out of the poor white girl. 😉
I love that, though. Don’t lose it. Your blog absolutely shows how down to
earth you are. I wouldn’t call it ‘trash’ at all, it’s more… well grounded
🙂
Then again, even though I didn’t grow up poor, I myself would also feel
verrrrrrrrry uncomfortable in boutiques with people handing me glasses of
champagne.
I know some people who refuse to shop at the dollar store, buy things from the sale bins at Target, or buy a used car or used clothing (Even designer used stuff), because doing so brings up bad memories of growing up poor, when they were forced to do such things.
I can believe that. I know people like that too.
Yeah, I also find that people who grew up poor often won’t accept free things because it reminds them of getting charitable donations when younger. For example, a company I worked at gave out gift cards for Cosi/Starbucks/Panera to the junior staff every now and then and someone didn’t take one because it was insulting to get something like that from management for her, reminded her of getting free lunches as a kid. Same thing with not taking the cards the company gave out for the grocery store and turkeys (even though it was like, a nice store, like Honeybaked Ham or Whole Foods) at Thanksgiving–reminded her of getting charity turkeys.
Wow. It’s amazing how strong those feelings can be and what an impression it
makes on you as a child.
In a Utopian world, financial status would be overrated but in a world like ours it means everything. It will dictate who will go to school and who will not, who will be boss and who will be janitor. Accumulated wealth is one thing but climbing up the financial ladder from poverty is another. By the time the latter reaches the top, they have already accumulated too much debt they have to eventually pay that off. I don’t think it’s in the spending because you cannot categorize the way of spending according to financial status. I believe each person is a financial unicorn, we have different ways of spending regardless of status because we have unique needs.
A donkey talking about unicorns. I LOVE IT! 🙂
Yes, you’re absolutely right, we’re all different, but there must be some
general trends across the board and I was only interested in discussing
factors less so than pointing the blame.
I grew up on the poverty line in a very hand-to-mouth existence that was funded by shuffling credit more than anything else. When I left home at 17 I started accumulating my own debt because I felt entitled to nice things after so many years without. It felt great to finally grocery shop and not count the cost of everything that went into the cart. So from 17-27 I accumulated debt. Then I started making great money and through no effort of my own (as in, no budgeting or saving) I paid off my debt. I only really learned about money and became uncomfortable with debt in the last year. Prior to that it seemed normal to be carrying balances on credit cards, have student loans or car payments.
My siblings have all had the same struggle and only my brother managed to escape the ‘I’m owed’ mentality that the rest of us had as we shopped on credit for stuff we couldn’t afford but felt entitled to. Even my mother, when given the opportunity to finally be out of debt, couldn’t resist the lure of shopping for all the stuff she didn’t have while raising 6 kids on her own.
Great post/discussion. My financial planner always uses the example that the client that makes 40k a year and spends 35k is wealthier than the client that makes 400k a year and spends 450k. So true.
I think the main thing is that you are starting to feel uncomfortable with
debt. That is a huge step in my opinion.
Mabye you could set the example for the rest of your 4 siblings who have
that mentality? And perhaps your mom? My mom has a bit of that “I’m owed”
mentality, too. I can see it in her spending habits and lack of proper
saving especially without kids to support any more.
OH gosh, my mom totally has the ‘I am owed’ mentality. It drives me crazy. I think my brother has it too. I have weaned myself off of it but I’m still in debt repayment mode. I worry sometimes that I’ll go into shopping overdrive when I am out of debt (six months!)
I don’t think you will. I think if you’ve really felt the pain of getting
out of debt (YAY 6 months!!), you won’t want to go back to your old ways.
You might loosen up a bit like I have (not to say I’ve taken on debt but my
spending has been a bit more lax) and you might do a little relief shopping
at the end, but you’ll be responsible for the most part. 🙂
The pain of that debt and that money disappearing each month will stop you
from going into debt again.
I also have to share a related quote from Chris Rock in one of his stand up shows where he’s talking about the difference between rich and wealthy (he talks a lot about race and class in his material): “Shaq is rich; the white guy who signs his checks is wealthy.”
Oh nice one. I’ll have to remember that to steal it from you later 🙂
I think it has to do with ignorance to a large degree – of not knowing how to budget basically – in other words what kind of spending in certain categories is appropriate based on $XXXX income. This is especially the case when people come into money or income who have never had it and who don’t have family members or otehr role models who have ever had it. They think “Oh, I make $3,500 a month now so a $1000 car payment doesn’t seem unreasonable.” They don’t know to add up insurance, gas, maintenance and then notice that nearly half their income is going to transportation – which is of course ridiculous and horrible. It also doesn’t help to have the media and TV showing them that people with “normal” jobs wear designer clothes and live in nice lofts and drive $30K cars. Look at every show on TV – everybody is living like they are millionaires, even when their characters are totally average occupations or even unemployed. And the millionaires (celebrities) are living like billionaires – which is one reason they so often go bankrupt.
I KNOW!!!!
That’s what drives me mad about TV and is the reason why I thought all of
the above about ‘rich’ people. I was utterly clueless, the TV having been my
only source of education on how people (and therefore I) should live.
This article is pretty interesting. I’m actually not a fan of generalizations, and my personal experience serves as the reason why. Growing up, my family was toeing the line of poverty and lower middle class. We never got more than the bare necessities and they pushed us hard to do well in school so we could have a better life than them. When I got my hands on money, I hoarded it. I just was naturally a saver. I feel way more comfortable spending if I know I have a nice cushion elsewhere (savings account, investments, etc). However, when my brother came onto money for the first time (and still to this day), he spends it. He does have the complex (in some sense) described by you and the article. He’s even gone as far to explicitly state that he is compensating for the the lack of things he had in his youth.
Same household, different results. What happened? I would call it external experiences. I love that you mentioned that you assumed certain things about wealthy people to be true. I didn’t have to assume as I was actually thrusted into that world because I went to a private high school. I realized early on that rich is temporary, but wealth is lasting. Rich buys cars and flaunts money, wealth saves and grows money. My brother didn’t have those experiences or lessons and continued to live with the desire of wanting to be rich. I’m still working to be wealthy.
I love what you just wrote: Rich is temporary but wealth is lasting.
Even in our household we all turned out differently. I am in between a
spender and a saver now but my siblings are either cheap as hell (like
REALLY cheap) or very into image and status symbols.