Conspicuous consumption and household indebtedness

Abstract

Using a novel, large dataset of consumer transactions in Singapore, we study how conspicuous consumption affects household indebtedness. The coexistence of private housing (condominiums) and subsidized public housing (HDB) allows us to identify conspicuous consumers. Conditional on income and other socioeconomic characteristics, those who choose to reside in condominiums – considered a status good in Singapore – are likely to be more conspicuous than their counterparts living in HDB units. We find that condominium residents spend considerably more (by 25%) on conspicuous goods but not differently on inconspicuous goods. Compared with their matched HDB counterparts, these consumers with higher conspicuous motivation carry 7% more credit card debt and 108% more delinquent credit card debt. Our results suggest that status-seeking-induced conspicuous consumption is an important determinant of household indebtedness.