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February 21, 2008

Do people really try to 'keep up with the Joneses?'

The old phrase, "keeping up with the Joneses," suggests many of us will watch the kind of spending our neighbors do and that this will impact what we spend. So if our neighbor buys a new car, we'll be motivated to buy a new car. Is there any evidence people really follow this pattern? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"First of all, economists have a fancy term for this behavior. It's called "positional economics." And it says that one of the things that we're concerned about - all of us in society - is our position, or status. Now, some economists actually studied this, and they find evidence to suggest that people will watch what their neighbors and/or their peer group are spending money on, and that may motivate them to spend money on a particular thing, even perhaps if they don't need it. This goes beyond just understanding spending behavior. Some economists are worried that this has motivated some middle-income households to perhaps overextend themselves. Because as we have seen a growing spread between rich households and middle-income households, the concern is that middle-income households in order to keep up with those rich Joneses will be motivated to go into debt, buy bigger houses or cars, buy more material things, that is, live beyond their means. Now, there is actually some evidence from these economists who studied this to support this. This is certainly a very, very controversial area, but it's worthy of consideration."

Posted by Dave at February 21, 2008 08:00 AM