Status and Saving: Economics, Theory, and Evidence

Few would dispute that people strive to improve or maintain their status in society and will spend money to do so. But to what extent does this concern for relative position mean people actually forgo saving for the future? If people are worried about 'keeping up with the Joneses' today, why would they not save to 'keep up' in the future. This text looks at theory and evidence on the economics of status, consumption and saving. It examines and develops theories as to why status seeking may distort saving rates and lead to most households saving less but the relatively rich saving more. It provides new empirical evidence relating saving rates to relative position. Finally, it considers the implications for policy both in terms of what policies might be considered to address distortions caused by status seeking and how existing policies might be affected. This text helps to shed light on household consumption and saving patterns. It will be of greatest use to economists and policy analysts interested in consumption and saving and in particular the effects of status.