The Color of Luxury Buying Do minorities spend more on indulgences like cosmetics than other groups? Kerwin Charles, Steans Family Professor at the University of Chicago, considers the numbers behind an urban myth.
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The Color of Luxury Buying

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The Color of Luxury Buying

The Color of Luxury Buying

The Color of Luxury Buying

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Do minorities spend more on indulgences like cosmetics than other groups? Kerwin Charles, Steans Family Professor at the University of Chicago, considers the numbers behind an urban myth.

MIKE PESCA, host:

So, what was your reaction to Molly's story when you heard it? One blog, Jezebel, there were hundreds of comments ranging from (unintelligible) against Mary Kay, Mary Kay proponents. People saying, you go chica, to why do you have to make money on the backs of other poor people? But there was a constant threat of conversation that - let me try to quote from it. Here's one person who wrote: I can't believe that people with so little money would waste what they have on luxury goods.

Well, what about that? You know, a couple of years ago, Bill Cosby goosed this discussion in his book "Come on People," which chided the black community for spending more money on sneakers than education. It's one of those topics that's like great fodder for talk radio because it's all anecdotal. You know, someone calls up and says, wait, I grew up poor and, you know, I never wasted my money. And other people's say, you know, don't judge others.

And there's never any real answers, perhaps, until now. Because Professor Kerwin Charles co-authored a study about conspicuous consumption in the black and Hispanic community. He teaches at the University of Chicago and is also a research associate at the National Bureau of Economic Research.

Hello, Professor Charles.

Professor KERWIN CHARLES (Co-Author, "Conspicuous Consumption and Race"): Hi, Mike. Good morning.

PESCA: So I wanted to know, what exactly where you looking at when you were in your study of conspicuous consumption of blacks and Latinos?

Prof. CHARLES: Okay. So we began, my co-authors and I, focusing on goods, which had the two following characteristics: First, items which were portable, that you took around with you. And second, things which were visible. And so the particular items on which we focused are clothing and jewelry - and by clothing, we mean what you would believe mean: sneakers, jeans, whatever. Personal care, which includes expenditure on cosmetics and the like, but also improves haircuts and hairdressing expenditures. And vehicle expenditure - the amount of money you spent on your car, including the sort of car payments and your rims, et cetera.

PESCA: And the first thing that you had to do - did you have to say, well, is what Bill Cosby - and here's a quote from Cosby's book, "We have all heard stories about folks who are in poverty, but will spend their last dime to buy overpriced sneakers." So was step one just saying, is that true? Do blacks and Hispanics spend more on conspicuous consumption than their white counterparts?

Prof. CHARLES: That is exactly right.

PESCA: And what you find?

Prof. CHARLES: They do. And so just to be clear about the motivation, I think they're motivated by several things. One was Cosby's comment, although - sort of, we heard about that, vaguely. Second, there's a kind of rough understanding in popular culture. If you think, for example, about the addition of the word bling to our social conversation. People have this vague sense that there are different consumption patterns. And finally, my co-author and I on another project had observed more vehicular expenditure among blacks than among other groups that seemed unexplained by the things we were - sort of basic measures you would have in a dataset. So we started focusing on conspicuous items because of all three - all those three reasons.

PESCA: And what's great about your study is, I think most people would just leave it at, well, it's a cultural difference. But you wanted to figure out the economic reasons, and there are economic reasons. I found them fascinating. Could you summarize what you found?

Prof. CHARLES: Okay. So I'll say two things. I'll say, first, we documented there are, in fact, these large differences by race in conspicuous consumption. Blacks devote about - blacks and Hispanic - about 28 percent more of their - they buy 28 percent more of those goods than do other groups. Now, the question is, why? There are two sorts of answers. One sort of answer is a preference answer, by which I mean, look, blacks and Hispanics might simply prefer more of those goods than other people, period. Now, we cannot reject that. I want to be clear about that.

PESCA: Right. So that may be true.

Prof. CHARLES: (unintelligible). That may be true.

PESCA: But in addition…

Prof. CHARLES: It has a disadvantage of seeming, to us, tautological - that blacks and Hispanics are different because they're different.

PESCA: Yeah.

Prof. CHARLES: So we said, is there - if we assumed that people's preferences are exactly the same, could there be other economic-type reasons for why we might observe this expenditure? And we argue that all economic agents care about - let's just call the thing status. We mean simply by status how they're perceived by persons of whom they come into contact in random interactions, say. And if that's so, they will be attentive to the things they buy, which those people can then observe. Okay?

PESCA: Yup.

Prof. CHARLES: And the argument is that if you encounter me on the street at random, you know nothing about me. And so you ascribe to me what you know from my group, on average. And if I come from a group that happens to have very low income in a given place, you will ascribe to me, oh, you'll say, Kerwin is a low-income guy. So in an effort to dislodge you from that belief, I'm attentive to things I buy. That's the rough argument. This is not an argument that originates with us. It's an argument that's been in economics for 100 years -or more, actually. And it's not only about race or even mainly about race. It's just about…

PESCA: So - but I mean, all that says is that poorer people have more of an incentive to, you know, wear something that would indicate that they're not poor.

Prof. CHARLES: Precisely.

PESCA: Yeah.

Prof. CHARLES: Incidentally - and this is true for all of us, right? All of us are interested - if you think about your neighborhood, you're interested in the impression you cast, right?

PESCA: Yes.

Prof. CHARLES: If everybody in my neighborhood suddenly has a slate countertop or, you know, a particular tile in their bathroom, and I am the one guy who does not, I am - that sort of bothers me, and I wish not to be thought ill of. So this need to sort of reflect - to be thought of well in the eyes of my peers is a universal human trait.

PESCA: And did you kind of - did you pretty much figure out that if white people were more in the position that blacks are and Hispanics are, that they would act exactly the same?

Prof. CHARLES: This exists - in our view, this is the biggest point of our paper. Okay?

PESCA: Yeah.

Prof. CHARLES: So we find that there are at least 30 percent differences in conspicuous consumption across race. But then we say, if it's the case that this argument I just laid out to you is correct, we should observe precisely the same behavior within race. Which is to say suppose you ignored blacks completely, and you looked to different kinds of whites sorted by the average income of their state. What we observed is that we find precisely the same behavior just among whites as we do just among blacks. The fact that the racial difference shows up so starkly is that blacks and whites, on average, come from such dramatically different communities in terms of state wealth or state income.

PESCA: I think I got it. And there is more interesting in the survey. Kerwin Charles is, who's a U. Chicago professor and author of that interesting study.

Thanks very much for joining us.

Prof. CHARLES: Thank you so much, Mike.

PESCA: And we'll be back on THE BRYANT PARK PROJECT from NPR News.

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