Thursday, October 10, 2013

The Psychology of Luxurious Spending

Do you spend on necessity, on luxury, or both?

I’ve been going around E-bay last night and I just realized that I wasn’t just eyeing for a new cool fashionable wrist watch to wear. I accidentally landed to the category “Luxury Watches” and surprisingly never left the page because of Gucci’s latest diamond-studded wrist watch that costs $2495. Yes, that’s a sweet two thousand grand for a watch that tells you if you are running late for your appointment. The difference? Asides that the watch is working just fine, it is a Gucci!

That made me contemplate about this question: Why do we fall in love with luxury, prestige, and the upscale living? Why do we like to keep up with the Joneses and live the so called “good life”? You would say, “Of course we want to live a luxurious life!” But have you ever asked why?

When somebody on the other table is drinking a bottle of luxury liquor that is $850 worth, we secretly wonder in our minds how that wine tastes. Maybe close to heaven. Maybe sophisticatedly tasteful. Practically speaking, we can always make simple purchases based on our needs-- maybe a nice pair of jeans, a functional smartphone, and a tasty cheeseburger will do. But it is not just physical hunger that we are trying to satisfy. So what is it? Out of curiosity I did a quick research about the underlying psychological factors of spending on luxury stuffs and I write my findings here.

An exquisite home in Las Vegas

Have you gone to a really luxurious place and felt good about yourself just by being there? It happens most of the time. That is one of the psychological reasons we like to buy luxury. There was this study that shows that the mere touching of a really expensive stuff or visiting a place of luxury instantly makes you feel better about yourself. More so if you go buy that desired luxurious item, because the brain will interpret it as an achievement, a milestone you made for yourself. And who doesn’t want that feeling?

However, there are also studies that show that purchasing a luxury item could be a result of wanting to get over a psychological threat, a bad experience. Have you ever wondered why we eat ice cream when we are at the dumps of despair? Say a loss of a loved one, a breakup with your romantic partner, being fired by your boss. Those are the emotional reasons why people make sudden purchases, and more often than not they are luxurious purchases which can give a great amount of pleasure to offset the emotional pain.

But the motivation to spend on luxury is also affected by where in the world you read this blog from. Jaehee Jung, a professor at University of Delaware conducted a world-wide research on what motivates people to buy luxury, by having collaborations with other researchers in 9 other countries. He and the rest of the team found out that on western cultures which value individualism, the defining factor of buying luxury is mainly to fulfill hedonistic needs. Adults in America are more inclined to spend for pleasure, and not place ultimate importance of bragging it to be accepted socially. On Eastern cultures which value collectivism, people buy out of wanting to be part of a social class. Meanwhile, Italians, Germans, Hungarians and Slovakians value quality and function over anything else that is why they spend on luxurious stuffs. People in France love the “exclusivity” that buying expensive items can bring.

No matter why you’re eyeing for that crazy Las Vegas vacation and dreaming to stay on a lavish condo for a couple of weeks or more, spending on luxury will always be an integral part of our psychology. It is a way to balance our mind and let us know that from time to time, we deserve to have fun, enjoy the goodness of life,  and live to the extreme! And why not? It will always be part of our society in the coming years, just as how global management firm, Bain & Company, predicted about the global luxury industry.