Signaling Status: The Impact of Relative Income on Household Consumption and Financial Decisions

50 Pages Posted: 3 Oct 2014

See all articles by Jesse Bricker

Jesse Bricker

Board of Governors of the Federal Reserve System

Rodney Ramcharan

University of Southern California, Marshall School of Business

Jacob Krimmel

Board of Governors of the Federal Reserve System; University of Pennsylvania - The Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: August 9, 2014

Abstract

This paper investigates the importance of status in household consumption and financial decisions using household data from the Survey of Consumer Finances (SCF) linked to neighborhood data in the American Community Survey (ACS). We find evidence that a household's income rank — its position in the income distribution relative to its close neighbors — is positively associated with its expenditures on high status cars, its level of indebtedness, as well as the riskiness of the household's portfolio. More aggregate county-level evidence based on a dataset of every new car sold in each county in the United States since 2002 also suggests that the signaling motive might be important. These results indicate that greater income heterogeneity might have large consequences for household consumption and portfolio decisions.

Keywords: Signaling, Household Finance

JEL Classification: E21, D12, D14, G11

Suggested Citation

Bricker, Jesse and Ramcharan, Rodney and Krimmel, Jacob, Signaling Status: The Impact of Relative Income on Household Consumption and Financial Decisions (August 9, 2014). FEDS Working Paper No. 2014-76. Available at SSRN: https://ssrn.com/abstract=2503557 or http://dx.doi.org/10.2139/ssrn.2503557

Jesse Bricker (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Rodney Ramcharan

University of Southern California, Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

Jacob Krimmel

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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