Income and Social Class

12 Income and Social Class P R I M M , S H A R When you finish this chapterO you will understand: N Chapter 1 Why do both personal and socialD conditions influence how we spend our money? Objectives A 2 How do we group consumers into social classes that say a lot about where they stand in society? 3 Why does a person’s desire9 to make a statement about his social class, or the class to which he 3 hopes to belong, influence the5 products he likes and dislikes? 7 B U ISBN 1-256-36592-0 #ONSUMER"EHAVIOR"UYING (AVING AND"EING, Ninth Edition, by Michael R. Solomon. Published by Prentice Hall. Copyright © 2011 Pearson Education, Inc. inally, the big day has come! Phil is F going home with Marilyn to meet P her parents. He was doing some R contracting work at the securities firm where I Marilyn works, and it was love at first sight. Even though Phil attendedM the “School of Hard Knocks” on the streets of Brooklyn and Marilyn was fresh out of Princeton, somehowM they knew they could work things out despite their vastly different backgrounds. Marilyn hinted that ,her family has money, but Phil doesn’t feel intimidated. After all, he knows plenty of guys from his old neighborhood who wheeled- and-dealed their way into six figures. He certainly can handle one more big shot in a silk suit who flashes a roll of bills and shows off his expensive modern furniture withS mirrors and gadgets every- where you look. H When they arrive at the family estate in Connecticut, Phil looks forA a Rolls-Royce parked in the circular driveway, but he only sees a beat-up Jeep Cherokee, which must Rbelong to one of the servants. Once inside, Phil is surprised by how simply the house is decorated andO by how shabby everything seems. A faded Oriental rug covers the hall entryway and all of the furnitureN looks really old. Phil is even more surprised when he meets Marilyn’s father, Mr. Caldwell. He had half expected him to be wearing a tuxedo and holding a large brandy snifter like theD rich people he’s seen in the movies. In fact, Phil had put on his best shiny Italian suit in anticipation,A and he wore his large cubic zirconium pinky ring so this guy would know that he had some money too. When Marilyn’s father emerges from his study wearing an old rumpled cardigan sweater and 3tennis sneakers, Phil realizes he’s definitely not one of those guys from the old neighborhood. 9 5 7 B U 1-256-36592-0 ISBN 457 #ONSUMER"EHAVIOR"UYING (AVING AND"EING, Ninth Edition, by Michael R. Solomon. Published by Prentice Hall. Copyright © 2011 Pearson Education, Inc. 458 SECTION 4 Consumers and Subcultures ECONsumer Behavior 1 Consumer Spending and Economic Behavior OBJECTIVE In the current dismal eco- Why do both personal As Phil’s eye-opening experience at the Caldwells’ house nomic climate we have to and social conditions suggests, there are many ways to spend money and there’s kick things off by ac- influence how we spend also a wide gulf between those who have it and those who knowledging that recent changes in consumer our money? spending—prompted by numerous factors in- don’t. Perhaps an equally wide gap exists between those who cluding frozen credit markets and massive have had it for a long time and those who “made it the hard layoffs—almost overnight altered the land- way—by earning it!” This chapter begins as we briefly con- scape of consumer behavior. The “go go” sider how general economic conditions affect the way we allocate our money. Then, years seem like a distant memory as many reflecting the adage that says “The rich are different,” we’ll explore how people who people suddenly put the brakes on their BUY occupy different positions in society consume in very different ways. NOW mentality. Since the 1980s (when we P last experienced economic turbulence) Americans’ savings rate dropped steadily—it Income Patterns R dipped to less than 1 percent in late 2008. In I a few short months this rate rocketed to 5 A popular saying goes, “You can never be too thin or too rich.” Although conditions percent as people cut back wherever they are tenuous now, overallM the average American’s standard of living continues to could. The new mantra: Make do with what improve—though many consumers don’t get a full ticket to The American Dream. you have. Save. Question every expense—do Two factors contribute toM an (overall) upward trajectory: a shift in women’s roles and you really need that Starbucks latte, that $80 increases in educational, attainment.4 haircut, that fashion magazine? Thriftiness is in, eye-popping bling is out. Even many fash- • Mothers with preschool children are the fastest-growing segment of working ionistas have turned into frugalistas—they re- people. Furthermore,S many of them work in high-paying occupations, such as fuse to sacrifice style but they achieve it on medicine and architecture, which men used to dominate. Although women are a budget. Now it’s cool to visit Web sites H still a minority in most professional occupations, their ranks continue to swell. and blogs that celebrate frugality—like The steady increase Ain the numbers of working women is a primary cause of the Dollar Stretcher (stretcher.com), All Things Frugal (allthingsfrugal.com), and Frugal Mom rapid growth of middle-R and upper-income families. (frugalmom.net).”1 • Education also determines who gets a bigger piece of the economic pie. Of course, it remains to be seen whether Although picking upO the tab for college often entails great sacrifice, it still pays this new frugality will persist when the econ- off in the long run. NCollege graduates earn about 50 percent more than those omy improves (and it will). Young consumers who have only gone through high school during the course of their lives. Women who have grown up with images of (if not ac- without high school Ddiplomas earn only 40 percent as much as women who have tual) affluence and in-your-face bling may not a college degree.5 So,A hang in there! be prepared to pull such an abrupt about- face. In one survey, 91 percent of young adults say they have financial goals, but only To Spend or Not to3 Spend, That Is the Question 53 percent stick to a monthly budget—and 42 percent give themselves a grade of D or F to Consumer demand for goods9 and services depends both on our ability and our will- describe how well they save.2 ingness to buy. Whereas demand for necessities tends to be stable over time, we Contrary to popular wisdom, not everyone postpone or eliminate other5 expenditures if we don’t feel that now is a good time to suffers in a recession—and consumers don’t spend money.6 For example,7 you may decide to “make do” with your current clunker uniformly cut back on their spending. Many of for another year rather than buy a new car right away. Even businesses like ware- them just reallocate their priorities (and per- house clubs that sell staplesB by the case feel the pain when shoppers postpone their haps buy less on credit). For now, which com- purchases; stores like CostcoU and Sam’s Club post big losses when people no longer panies will feel the pain and which will actu- buy their discounted jewelry and clothing even though sales of paper towels and ally gain? A few years ago Citigroup strategists pickles hold steady.7 coined the term plutonomy to describe an economy that’s driven by a fairly small number Discretionary income is the money available to a household over and above of rich people. Taking a cue from the Standard what it requires to have a comfortable standard of living. Economists estimate that & Poor’s 500-stock index, they created a “bas- American consumers wield about $400 billion a year in discretionary spending power. People aged 35 to 55, whose incomes are at a peak, account for about half of ket” of luxury stocks like Bulgari, Porsche, and ISBN Sotheby’s. Unfortunately many of those rich this amount. As the population ages and income levels rise, the way a typical U.S. people are a lot less rich today—and luxury household spends its money changes. The most noticeable shift is to allocate a 1-256-36592-0 brands are hurting. much larger share of its budget to shelter and transportation, and less to food and On the other hand another team of ana- apparel. (Note: This doesn’t mean that higher income households buy less food and lysts created their own Poor Getting Poorer clothing—the proportion of dollars that goes toward these categories decreases.) #ONSUMER"EHAVIOR"UYING (AVING AND"EING, Ninth Edition, by Michael R. Solomon. Published by Prentice Hall. Copyright © 2011 Pearson Education, Inc. CHAPTER 12 Income and Social Class 459 Individual Attitudes Toward Money Index—this basket includes 22 stocks that in- Especially in the wake of the Great Recession of 2009, many consumers experience clude retailers, generic brands, repossession doubts about their individual and collective futures, and they are anxious to hold on agencies, dollar stores, and pawnshops that prosper when others do worse. In a period to what they have. Of course, not everyone has the same attitudes about money and when the S&P declined by 40 percent, this in- its importance.

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