Thursday, February 21, 2008

Ivy League Thought Process

The University of Pennsylvania's Wharton School of Business conducted a survey in 2007 about spending habits of consumers. This year, they conducted a follow-up study. This latest survey was to further examine the results from the previous inquiries, which "found that spending differences between tightwads and spendthrifts were much greater among respondents with higher income (>$100,000) than among respondents with lower income (≤$50,000)." Mr. Scott Rick from Wharton kindly sent the initial thoughts on the results to the people who participated.
Of course, these results are correlational, and so it’s not clear what’s causing what. It could be the case that the spending habits of spendthrifts are most sensitive to changes in income. In economic terms, the marginal propensity to consume” may be greater among spendthrifts than among tightwads. Alternatively, it could be the case that spendthrifts who particularly enjoy to spend are particularly motivated to seek high-paying careers that can finance those desires. That is, income is not randomly assigned, and different consumer types may select into high-paying careers for different reasons.

* * *

This is only a summary of the analyses conducted thus far, and there is more to do, but the initial results argue against the differential marginal propensity to consume hypothesis. Instead, the results provide some initial support for the selection hypothesis, namely that different consumer types select into high-paying jobs or careers for different reasons.
To summarize: people choose to obtain jobs that pay high salaries so that they spend money, and people choose low-paying jobs if they don't like to spend money.

To quote my co-worker, "I guess conversely, people who don’t like money really enjoy being poor. Sounds perfectly reasonable to me."

2 comments:

Chuckling said...

I'm not so sure there isn't some truth to that. Although most people would prefer to make a lot of money, a lot of us simply aren't willing to do what it takes.

Of course there is no one simple guideline for "what it takes," but we're usually talking about some combination of sacrificing family and freedom to work long hours at tasks one doesn't really consider meaningful and, in the corporate world especially, a lot of sucking up. People who don't consider the rewards - toys and such, respect of people you don't respect -- worth the necessary sacrifice in time and self-respect.

In this society, it's difficult for those who don't care so much about money and the crap it buys to like being poor. Health care's definitely an issue and poverty is not something one should inflict on children if one can help it, but those observations argue more to better societal arrangements than to equating money with success.

ChrisV82 said...

Sure, I follow what you're saying, and I understand that. It's true. I think many people would take a pay cut to have a French-style job (less than 40 hour work week, 7 weeks mandatory vacation, good health care), but I'm just not sure that it's all a matter of choice. Not many people could go from making less than $50K to over $100K simply if they chose to work harder and sacrifice more in their earlier years. A significant portion of it has to do with where you come from, your relative wealth and class prior to your application into college and/or the job market, who your family is, and even luck.

Choice isn't the only factor, and I doubt it's the primary factor.