Study: Low-income Extroverts Spend More Money on Social Status, Luxury Goods

Study: Low-income Extroverts Spend More Money on Social Status, Luxury Goods

Imagine this: you’re a college student at the University of Colorado, Boulder, and you hold down an internship that pays you roughly $17,500 a year, which is well-below the $28,390 living wage in Boulder for one adult. After school necessities and rent are paid, what do you think you’ll spend your money on?

The answer depends on if you’re an extrovert or introvert.

A new study by researchers at the University College London suggests that low-income people who identify as extroverts, social people who thrive around others, buy more luxury goods than their introverted peers, people who value solitude.

People living on a low income often rate themselves to have low societal status and value, traits extroverts highly value, and consequently they tend to compensate by spending a higher percentage of their money on goods and services that are perceived to attribute high social status, the study states.

The study, “Personality, Income, and Compensatory Consumption: Low-Income Extraverts Spend More on Status” was published on Aug. 23, in “Psychological Science”, investigated spending data from UK bank accounts to evaluate the spending habits of richer and poorer people who have different personality types.

“We’ve shown that personality looks to be an important factor in how people respond to living with limited resources. We hope this new association will help us better understand which people may be likely to engage in behavior that perpetuates the conditions of financial hardship,” Joe Gladstone, study co-author from UCL School of Management, explained in a press release.

Extroverts and other people who are highly sociable and outgoing care more about their social status than others. The UCL research shows that extroverted people who have a lower income spend proportionately more on status goods and social things to do than introverts on the same income. However, at higher incomes, the difference in spending switches and introverted people buy more luxury goods than their social counterparts.

“It’s clear from our study that an extroverted personality is a driver for low-income individuals purchasing more luxury goods, and this is most likely to compensate for a perceived low social status that isn’t as keenly felt by introverts. We saw very little difference in the spending habits of introverts and extroverts with high incomes,” said Blaine Landis, study co-author from UCL School of Management.

A UK-based multinational bank worked with the UCL researchers to find willing research participants. Consenting customers were asked to complete a standard personality questionnaire so their responses could be matched anonymously for research purposes with their bank transaction data, the press release states.

The UCL researchers analysed thousands of transactions from 718 customers over 12 months, but social personality wasn’t the only factor considered alongside spending habits. The results also incorporate cash spending, age, sex, employment status, and number of children.

Each participant’s spending data were sorted into a number of spending categories and ranked from one, very low status, to five, very high status. High-status categories included foreign air travel, golf, electronics and art institutions, and low-status categories included pawnbrokers, salvage yards and discount stores, the release states.

The UCL team concluded that the interaction between income and extroversion to predict spending on luxury goods is significant, but the subject requires more research to determine whether the relationship is causal.

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