Geranium Farm Home     Who's Who on the Farm     The Almost Daily eMo     Subscriptions     Coming Events     Links
Hodgepodge     More or Less Church     Ways of the World     Father Matthew     A Few Good Writers     Bookstore
Light a Prayer Candle     Message Board     Donations     Gifts For Life     Pennies From Heaven     Live Chat

Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Monday, August 28, 2006

Better Living Through Shopping

". . . people were investing more of their incomes into consumer goods . . . the list of articles people regarded as necessities was beginning to expand . . . . The need for stylish or novel items might easily overcome normal restraint. Not surprisingly, people also went deep into debt to cover consumer goods they thought they needed."

This quote seems, doesn't it, to describe the picture of current consumer spending and debt in America that we've discussed in recent Ways of the World articles. It's that all right, but it's far from current. These sentences come from Consumerism in World History by Peter Stearns, and he is referring to the "emergence of consumerism" in Western Europe in the first half of the 18th Century! In that era, many of the attitudes and practices about spending that concern us today found their beginnings – almost as soon as the products became available to a wider public. To be sure, this "wider public" had not nearly the universal scope of the present mass consumerism, but much of the opportunity for greater spending was in place well more than two centuries ago.

Even much longer ago than that, people acquired and used things they didn't need. Archaeologists and anthropologists report finding articles of personal adornment, bangles and baubles and decorated pots and cave paintings from millennia ago. It's a human characteristic, which we in our day have carried on to an extreme.

Justifying Our Purchases
As we previewed last time, market researchers have explored in some detail our reasoning for acquiring things. Pamela Danziger, president of a research firm called Unity Marketing, has conducted extensive studies using discussion or "focus" groups. In her book Why People Buy Things They Don't Need, she describes the process people use to give themselves permission to acquire more possessions.

In these focus group studies, common themes kept coming up. The most frequent is improvement in quality of life. Analysis of participants' responses indicates that people want to live better in five ways: intellectually (through a book perhaps), physically (moisturizing lotion as an example), spiritually (votive candles), emotionally (scrapbooking materials) and socially (a set of wine glasses). The participants said they also buy things that help them relax (a massage), relieve stress (an alarm system) and facilitate the pursuit of hobbies (craft materials).

According to Danziger's studies, we also purchase things to make a planned enhancement to our lifestyle (adding a deck to the house), to replace an old item (a broken lamp, maybe), as gifts for others – and often ourselves too – and simply on impulse when walking through a store.

Self Expression in the Home and in Our Clothing
Danziger's work highlights the centrality of our homes as outlets for self-expression through style and decoration. Furnham and Argyle, the psychologists we've met before in their book The Psychology of Money, agree with that. They also see this role of self-expression in our choices of clothing: specific items or styles become a statement of identity with a group in society or, conversely, a statement of independence from that group. Finally, Danziger notes the role of "status". In her surveys only 30% of participants said they buy things to "show off". But she herself is skeptical of their responses. In an era of political correctness, she suggests, people aren't about to admit how important social status is to them.

Shopping Itself Is Important
As we make all of our purchases, we really have two experiences: owning the item and shopping for it. In many cases, Danziger writes, the shopping holds the greater significance. People told her about the pleasure they enjoyed in anticipating a purchase, researching the products or services and going on the actual shopping excursion. The acquisition itself gives them a great feeling of triumph and excitement.

Shopping for pleasure started with the advent of the department store around 1850, according to Stearns, the historian. Its innovations included attractive displays of a wide variety of merchandise; the expanse and openness of the stores established them as a location for socializing in the community. The extrapolation of the trend came to a kind of climax with the shopping mall; in particular Stearns cites the Mall of America near Minneapolis. With its 520 stores, 96 restaurant and food services, 14 movie theaters, Ferris wheel, roller coaster and dinosaur museum, it intentionally wants people to be entertained so they will spend more freely.

Been There, Done That! What's Next?
All this is great fun. But some weeks after we get our new set of pottery, we knock two pieces together and a plate cracks. Or someone sets a hot cooking pot on the new Formica countertop, leaving an unsightly brown ring. We've e-mailed the pictures of the Disney World trip to so many people that they're thinking the shot of Johnnie with Goofy is just goofy. The new has worn off and we're bored. What can we do now?

I know! A cruise to Alaska. Even the kids should enjoy that adventure. And look at that, would you? The pottery outlet where we bought the now cracked plate has matching beverage glasses and place mats. We go out not only with the replacement plate, but a set of iced tea glasses and those place mats too.

So when the new wears off – and it will – we have to find something else that excites us. We have to keep reaching and grasping. It's not really that we're greedy. It's more that we're seeking and striving for some preconceived notion of a "better life". There's a social science term for this: it's called the hedonic treadmill. We keep walking and running to find something better, but we just stay in the same place.

What We Really Value
Furnham and Argyle give another spin on our relationship with possessions. They explore what people really value among their belongings. It's not the new cocktail blender or the in-ground gunite swimming pool. What we really care about are the old family pictures of Grandma and Grandpa on their wedding day and the original framed house blessing Father Tim Kavanagh presented when they moved into their first real home down in Mitford. These things have little monetary value – indeed now they are priceless – but they keep us in touch with who we are and where we came from.

As circumstances would have it, just when we are writing here about people's quest for better living through shopping, the Episcopal Church calendar prescribes the reading of the Sixth Chapter of John. This summer, it is coming to us simultaneously at the Sunday Eucharist and in the Daily Office lessons. Listen to what Jesus tells us there (vv. 27, 32, 48-51): "Do not work for the food that perishes, but for the food that endures for eternal life, which the Son of Man will give you. . . . it was not Moses who gave you the bread from heaven, but it is my Father who gives you the true bread . . . I am the bread of life. Your ancestors ate the manna in the wilderness, and they died. This is the bread that comes down from heaven, so that one may eat of it and not die. I am the living bread . . . ."

Wednesday, August 02, 2006

Spending More Than Our Income

In our last two articles, we described what two very rich people are doing with their money as they make pledges to laudable philanthropic projects.

This time, we'll come back down to earth and talk about us ordinary mortals. What do people in general do with their money? About a month ago, we examined their mounting debt burden; what are they spending on that generates debt like that?

There are two stories here – we've realized since Ways of the World began that every topic we approach breaks down into at least two stories. So today, we cover some simple facts about spending patterns. Next time, we'll look at motives that psychologists and market researchers have identified as drivers for buying and owning "things".

Necessities or Luxuries?
Analysts of consumer spending frequently divide it up according to the kind of need it meets, a basic necessity or some discretionary item that we might have more choice about. But we'll find as we go through a list of spending categories, that it isn't that cut-and-dried.

Shelter: McMansions for Everyone?
For instance, while it is unlikely to come as any surprise that we spend the most on housing, a very basic necessity, it is also true that there's lots of variation in the size, location and style of our "shelter" which gives it a significant "discretionary" element. In 2005, the average household spent $11,200, according to Commerce Department and Census Bureau compilations. This total includes allotments for mortgage payments and property taxes for homeowners, rent for tenants and utility bills. Along with maintenance, repairs and other household services, shelter absorbed almost exactly 20% of after-tax personal income last year.

Food: Eating More In and Out
Food runs second in size in our budgets, taking $10,700 for an average household last year, 15.6% of income. This share of income has expanded almost a full percentage point in the last five years. Food to eat at home – groceries – and food eaten away from home – restaurants – each accounts for about 40% of that increase, with the rest absorbed by alcohol, especially beer. There's got to be some Freudian point underlying that! But obviously, our necessity/discretionary dichotomy breaks down once again. About all we can say is that some part of our food budget is absolutely necessary, but certainly not all of it.

Health Care
Then there's medical care. The amount we consumers actually lay out for medical care is a fuzzy concept that depends on which set of government bureaucrats is doing the counting. We tried to use a middle-size measure here, something the Commerce Department calls "market-based" consumption of health care services plus medical supplies. This grouping also took about 16% of our income last year.

Clothing: How Low Can the "Waistband" Go?
Another presumed "necessity" is, of course, clothing. For some parents who are trying to talk their pre-teens out of another pair of low-rise Levis, it may be hard to believe that clothing prices have been falling, but they have, and the share of people's income spent on clothing has diminished slightly in recent years, from 4.1% in 2000 to 3.8% in early 2006. Our example here was specially chosen to indicate the kinds of discretion that can creep into this budget item.

Finally among basic consumer needs, we need to get ourselves around from place to place. First, the vehicle. Our spending on cars and small trucks has, interestingly, been just about flat since 2002. No kidding: in the aggregate, a moving average of the dollars consumers have spent on cars, truck, and parts has moved very little, hovering around $445 billion over the past three-and-a-half years. This means it has decreased noticeably as a portion of income, from about 6% in early 2002 to just under 5% at the end of 2005.

Fuel, of course, is another story altogether. In 2001, outlays on gasoline and oil were $171 billion, or just over $1,600 per household. This amounted to 2.4% of income. By the first quarter of this year, these outlays had exploded by 74% to roughly $2,700 or 3.3% of income. For the month of May, that gasoline-to-income share was up to 3.8% and it almost surely increased in June and July.

With Spending on Options Up Too, Our Outlays Are Bigger Than Income
With these so-called "basic" categories – shelter, food, medical care, clothing and personal transportation – we have accounted for 58% of after-tax consumer income in early 2006. This is 4% more than the 54% average for 2000. Further, people obviously spend on lots of other items: home furnishings, travel, recreation, education, personal care, just to name some. In these last five years, as "necessities" were taking a growing part of our income, what did we do with the presumably more discretionary sectors? Did we cut back? Well, no: we spent more on them too, and their share of income also increased, from 38% in 2000 to 39% last year. We also make other outlays, for interest payments, family income transfers, and so on. This spending-itis is apparently a progressive condition, and in the first quarter of this year, we shelled out 1.7% more than our income. Oops.

We noted at the beginning here that there's some helpful information about motives for this behavior, and that will follow next time. Unfortunately, for such a dramatic result as consumers in total overspending their income, some of our reasoning looks pretty shallow. To give you an idea, one of our sources is a book titled "Why People Buy Things They Don't Need" and the chapter we will summarize is called "The 14 Justifiers . . ."

What Do We Really "Want"?
Wonder what's really going on here? Why do we think we need to seek out all this gratification from things? Part of it, as anthropologists teach, is that human beings, like other animals, have always and everywhere had some sense of possession and control. But part of this is superficial, and we'll even find out that the gratification we think we might have achieved may fade away before we know it . . . .
Two technical notes on our numbers. We've used mainly the Commerce Department's concept called "market-based" PCE [personal consumption expenditures] and we've compared it with a modified version of disposable [after-tax] personal income. Anyone who wants to see the calculations is welcome to send me an email. Secondly, as this article was being written, Commerce's Bureau of Economic Analysis released its annual revisions of these data beginning in 2003. We've chosen to ignore the revisions, which were routine this year and unlikely to alter the sense of what we've said here.

Copyright © 2003-Present Geranium Farm - All rights reserved.
Reproduction of any materials on this web site for any purpose
other than personal use without written consent is prohibited.