moneyreallymatters.com

This topic is one of my favorite which I discuss with my friends whenever we have get-together. Some of my friends don’t mind paying more or buying certain things due to peer pressure or to keep up their status. I strongly critic and joke about their activity but it seems many Americans are trapped in the same net. I came across an article recently titled, The Perils of Paying for Status at mymoneyblog.com. It talks about this very same topic delving more in detail with facts and figures.

Here is few interesting items from the article,

In an experiment published in 2011 psychologist Aarti Ivanic of the University of San Diego, along with her colleagues, recruited 113 African-American and Caucasian shoppers at a mall. They showed half of the African-Americans a list of 10 stereotypical characteristics of their race, including “high athletic ability” and “low performance on an academic test,” and asked them to indicate how much each one applied to them personally.

The participants then received a description of high-end headphones and reported how much they would be willing to pay for them. African-Americans who had been reminded of racial stereotypes offered to pay nearly twice as much for the headphones as either Caucasians or African-Americans who had not been asked about stereotypical traits. The groups did not differ in their interest in actually buying the headphones. Therefore, the researchers concluded that racial typecasting may lead African-Americans to pay more as a way of coping with feelings of lower status. Unfortunately, this finding also hints that African-Americans may be regularly parting with more money than necessary.

In a second study, Ivanic and her colleagues asked 344 participants to imagine that they were planning a vacation, using a fictitious travel Web site. A $200-per-night standard room was the default travel package, but luxury rooms were also available. Participants were asked how much above the standard rate they would pay for the upgrade. African-Americans who had been reminded of their race (in a manner similar to that used in the previous study) offered to pay twice as much as Caucasians for the more costly room. The researchers speculated that African-Americans may attach a higher cash value to luxury because of a greater need to elevate their perceived place on the social ladder.

Widespread feelings of low rank may engender even more unfairness. After all, consumers who are known to pay more are very likely to be charged more, and investigators have found that prices are indeed sometimes higher for African-Americans. For example, in a 2007 study researchers at New York University determined that African-American home buyers in New York City were more likely than Caucasians to be offered mortgages with higher interest rates. The result held even after controlling for median household income.

The next time that you are making a purchase, be aware of your motives. If you harbor feelings of insecurity, you might want to come back later, when you feel a little cockier. You might get a better deal.

The studies clearly reflects that if you feel low status you might be tempted to make decision which might cost you more just to show you don’t belong there instead belong to higher status group. Also if you feel low, don’t make any purchase you might be tempted to make wrong decisions. Just be aware of it and make your decisions not by force but by your need.

To read full article, go to scientificamerican.com