Blacks and Hispanics spend on average $2300 more per year on visible goods (clothing, jewelry, cars) and less on healthcare and education than whites – conspicuous consumption plays a role in their lower wealth accumulation

Aug 3, 2020

Blacks and Hispanics spend up to 30% more than whites of comparable income on visible goods like clothing, cars and jewelry, the researchers found. This meant that, compared to white households of similar income, the typical black and Hispanic household spent $2,300 more per year on visible items. To do that, they spent less on almost all other categories except housing, and they saved less.

we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. We demonstrate that these differences exist among virtually all subpopulations, that they are relatively constant over time, and that they are economically large. While racial differences in utility preference parameters might account for a portion of these consumption differences, we emphasize instead a model of status seeking in which conspicuous consumption is used to reflect a household’s economic position relative to a reference group. Using merged data on race and state level income, we demonstrate that a key prediction of our model – that visible consumption should be declining in mean reference group income – is strongly borne out in the data separately for each racial group. Moreover, we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption. We conclude with an assessment of the role of conspicuous consumption in explaining lower spending by racial minorities on items likes health and education, as well as their lower rates of wealth accumulation

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