Articles Archive for February 2011

What is the Impact of Materialism on Economics ?

23 February 2011 Sören Zschoche 57 Comments Investing

Economics is a science that studies how societies share their resources to meet their needs. In this study we can see how the resources are utilized by the consumers to fulfill their desires and requirements. As they try to satisfy their needs they often incur debt and then these indebted consumers are forced to take the help of a debt settlement programs. But are you aware that materialism has an immense effect on economics in both positive and negative ways?

Growth and expenditure of the consumers

Economists at Hoover Institution, Stanford University state that the consumers spend nearly 70% of the US gross domestic product (GDP). GDP is the calculation for total economic output. The consumers are forced to spend their non-refundable income to obtain more goods due to an approach towards the economic materialism. As the demand in the market is high so the firms have to supply more products to meet the demand of the consumers that renders into economic growth. Therefore, this boosts the spending which consequently increases the GDP.

Conspicuous Consumption

Most of the consumers spend for the purpose of flaunting their wealth as this is the ultimate motive for conspicuous consumption. Materialism can be coined as conspicuous consumption. People who are in awe with materialism focus their attention to “keeping up with the Joneses,” a popular phrase for conspicuous consumption. In this situation you gauge your wealth by comparing it with your neighbor’s prosperity. In order to prove his power of wealth he will invest more money on a larger house, more expensive cars and other luxury goods.

Savings Rate is low

Consumer’s approach towards materialism instigates them to spend more to acquire more goods. Presently, people are not interested in saving as they spend their full income to purchase goods and services. The economists in the government as well as in the private sectors have cautioned about the severe impact due to the diminishing savings rate of the Nation. Capital investment is decreasing with low savings rate amongst the Americans. Lack of investment capital fails to give scope for economic expansion. In a way, the U.S economy is controlled by the foreign investors.

Consumer Debt

The psychological impact of materialism on people drives them to buy things that exceed their budget. They usually incur insurmountable debts on credit cards with high interest or huge amount of mortgage for large houses. Mortgage is taking a serious shape in the U.S economy and around the globe. People are taking out loans to buy large and expensive houses but they default with the crash in the housing and credit market. Even post recession, many Americans have come across a dangerous situation as there is lack of financial security and no job security.

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