Why people in the ghetto have flatscreens and millionaires go bankrupt

I always entertain new ideas for blog topics. Per special request of my favorite older brother, I decided to explore this particular topic.

How do people choose to spend their money? Consumerism is a particular interest of mine as evident by my prior posts, but I have only discussed how people can choose between comparable items, not the specific type of items to purchase.

Of course, there are always the extreme cases of shopaholics or excessive gamblers that spend every cent of their money without making “rational” decisions, but what about the “normal,” “rational” consumers?

The famous “Hierarchy of Needs” introduced by Abraham Maslow in 1943 offer a window into the human decision-making process. The foundation of the pyramid is physiological needs such as food and sleep followed by safety needs like shelter and a job. Love/belonging, esteem, and self-actualization complete the pyramid. The obvious (or at least what I would assume to be obvious) conclusion from analyzing the pyramid is that people would do their utmost to satiate their physiological needs, i.e. breathing, water, and food. The Merriam-Webster dictionary defines physiological as “characteristic of or appropriate to an organism's healthy or normal functioning.” Healthy and normal functioning is rather subjective and for most people, it includes much more than food, sleep, and breathing.

Human beings attempt to make rational decisions, but unfortunately most decisions that people make are motivated by irrational incentives and needs. That is why people living below the poverty line have cable and big screen televisions and why millionaires go bankrupt after spending too much money on cars and lavish vacations. Those types of “entertainment” and material items are, to some people, vital aspects of satisfying physiological needs. To some people, those needs are just as or even more important than living in a nice home in a safe area.

In a similar respect, depending on economic situation, individuals have different feelings toward social issues. When you have a good job, nice apartment, and plenty of food, you no longer have to worry about basic needs. People in those types of situations can divert their attention toward social causes like global warming and human rights. For the 1.4 billion (yes – BILLION) people who live below the poverty line, something like global warming is as trivial as deciding which designer sunglasses to buy.

So the answer as to why people choose to spend money that they don’t have on things that they don’t need is simply because they want to and by doing so, it makes them happy. Of course, measuring the amount of utility that someone receives from spending money on a particular item is another topic entirely.

Maslow's Hierarchy of Needs