Personality, Income, and Compensatory Consumption: Low-Income Extraverts Spend More on Status

In brief

People on low incomes spend a larger share of their money on status goods, but not everyone does so equally. Using a year of bank transactions, we show that extraverts on low incomes spend proportionately more on high-status purchases than introverts with the same income, consistent with compensatory consumption: buying status to make up for a perceived deficit. At higher incomes the difference between extraverts and introverts fades.

Summary

People living on low income tend to spend a higher percentage of it on products and services perceived to have high status (Bagwell & Bernheim, 1996; Veblen, 1994). Although signaling wealth through greater consumption acts as a way for poorer groups to restore feelings of self-integrity (Sivanathan & Pettit, 2010) and personal power (Rucker & Galinsky, 2008, 2009), conspicuous consumption can also perpetuate financial hardship because it limits self-investment (Moav & Neeman, 2012). Understanding how the experience of deprivation affects spending decisions continues to be a significant research and policy goal. We suggest that the experience of living with limited resources may not affect everyone equally, and there may be important personality differences in how people respond to having low income. Research on compensatory consumption suggests that people consume goods to compensate for perceived self-deficits (Kim & Gal, 2014), which can explain why people with lower income spend relatively more on high-status goods. We reason that the more individuals are inclined to focus on their relative social and economic status, the more frequently they will engage in purchases that satisfy the need for self-restoration. Extraversion, the tendency toward sociability and ambition (Digman, 1990; Wilt & Revelle, 2009), predicts how much people value status (Roberts & Robins, 2000). For example, extraverts actively seek out status at work (Barrick, Stewart, & Piotrowski, 2002). When extraverts have low income, we expect this desire for status to be more pronounced, such that extraverts will spend a greater proportion of their money on status.

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Published version (DOI) · More on spending and personality