"Wealth is the slave of a wise man. The master of a fool." - Seneca (5 BC - 65 AD)
The term "Conspicuous Consumption" was first coined by economist Thorstein Veblen in his book The Theory of the Leisure Class in 1899. Conspicuous Consumption is defined as spending large amounts of money on services and goods for the primary purpose of showing off your wealth. Those who believe in this phenomenon often feel that purchasing lavish goods allows them to hold a certain social status. While you may not have heard of this term, another modern expression which is very similar is referred to as "keeping up with the Jones'." An additional term which is closely related to Conspicuous
Consumption is "Bling."
In this chapter, I will explain why Conspicuous Consumption is dangerous, and can destroy your ability to ever become financially independent. It could be said that Conspicuous Consumption is just the opposite of being a miser. While a miser hordes every single penny he or she makes, rarely spending money on anything, someone who believes in Conspicuous Consumption will spend large amounts of money on luxury goods and services they really don't need. If you want to be balanced with your personal finances, you need to avoid falling under the category of either extreme. However, Conspicuous Consumption is quite pronounced in our society today. Americans have been brainwashed into believing that purchasing expensive cars, clothes, jewelry, and electronics is the key to wealth. As an example, how many times have you watched a television show, or read a news report where you were told how much a celebrity paid for a home, car, or some other product or service? If you're like most people, you've probably witnessed this many times. Two good examples of television shows which feature this are "MTV Cribs", and "Lifestyles of the Rich and Famous," which went off air sometime ago.
Both of these shows feature the lavish spending of celebrities and other wealthy individuals. Viewers are immersed in a world of large mansions, expensive cars, and expensive jewelry. Perhaps the biggest problem with these shows is that they are not reality for most people. While some would argue that "there is nothing wrong with rich people showing off what they have," anyone who feels this way is missing the big picture. When you watch these shows, you are being conditioned to believe that owning
expensive goods is the key to wealth and financial independence.
Many of the people who watch these shows believe that spending equals success, and when they get money from their job or some other source, they go out and spend most of it. Most even go in debt to purchase luxury goods and services. When you watch these shows, they are quick to tell you what the celebrity buys and how much they spend, but they don't tell you "what the celebrity had to go through to acquire all these luxuries." The primary difference between the wealthy people featured on these shows and the average person is that "they are already wealthy." They've become successful, and they
have the disposable income/wealth to spend on these goods and services. The problem with the average person is that they spend lavishly "in the anticipation of becoming rich." The reality is that this day may never come, and because you're spending money in anticipation of becoming wealthy, you're stopping yourself from actually achieving wealth, because all the money you make is going into the hands of someone else. As you should already know from what you've read so far in this book, becoming wealthy is all about what you save, not about what you make, or how much you spend.
However, there is a deeper question that must be raised here, and that question is: Who promotes
the idea that spending equals wealth? The answer to this question should be obvious: The people who promote this myth are those who sell luxury goods and services, as well as banks and lending companies. These are the entities that benefit the most from shows like MTV Cribs. Since they sell the
goods, and lend out the money to buy these goods, they are the ones who benefit the most. This is the same group that spends billions of dollars per year on advertising. They advertise for expensive clothes, watches, purses, yachts, cars, gadgets, and a host of other goods, many of which depreciate in value after they are purchased. When you look around you, and you see all the advertising for luxury goods and services, and you constantly hear about how much celebrities spend or make, it becomes so easy to
see why so many Americans are in debt. These people have chosen to buy into the myth, the myth that spending lots of money on luxury goods equals wealth. When you combine this with the lack of financial education which is so prevalent in our society, the root of our financial problems becomes obvious. A lack of financial education combined with the propaganda to spend money equals a society that is full of people who are either broke or in debt.
I recently read that 1 in 4 Americans didn't read a single book last year. Many Americans don't know who the current Vice President is, what year the September 11 attacks occurred, or even where their own country is on a map. It is this extreme ignorance that has caused so many people to live in poverty. When you know nothing about the world around you, how can you expect to thrive? This is especially crucial when it comes to your personal finances. It is no real secret that society is designed to keep us broke. Throughout this book, I've talked about inflation, our credit based system, and a host of other issues which keeps most people from ever getting ahead. Millions of Americans will live out their lives working for the system, and when it is all said and done, they won't have damn thing to show for it.
Many will die in total poverty, while others will never be able to retire. Is this the type of fate you want for yourself? Conspicuous Consumption is just one of the many tools that is used to make sure the poor stay poor, and the rich become even richer. It is a propaganda tool that is used to extract even more wealth from the bottom of the pyramid, making those at the top even wealthier. If you wish to become financially independent, you must avoid feeding into the propaganda that "buying more makes you rich." Most people who are financially independent become that way because they spend wisely, and invest money in things that matter, like their education or business. Of course these people do purchase some luxury goods, but this only makes up a small fraction of their wealth. Instead of following Conspicuous Consumption, follow the strategy that I discussed in previous chapters, and this is the philosophy of Selective Luxury. Be frugal with most things, but spend generously on a handful of luxuries that don't stop you from putting away most of your income.
Selective Luxury is the ultimate financial strategy, and it is much more powerful than Conspicuous Consumption. When you use Conspicuous Consumption, you will find yourself in a never ending cycle of trying to buy the latest goods and services to keep up with everyone else. The only thing it ensures is that those who offer these services will have a never ending cycle of income, becoming wealthier over time, while you become less wealthy. In reality, less than 0.1% of the U.S. populations can Conspicuously Consume without any severe financial consequences. These are the individuals that I would like to refer to as the "super rich." They tend to make millions of dollars per year, and their net worth is either in the tens of millions, hundreds of millions, or billions. However, no matter how much money they make or have, as I stated in the last chapter on budgets, no one has unlimited resources. If you spend too much at one time, or are hit with too many expenses, eventually, you will use up your wealth, no matter how vast it is.
This chapter is dedicated to those who follow the rules in this book. If you follow the rules and guidelines that I've stated in Finance Wars, you are practically guaranteed wealth, especially over the long term. The reason for this is because this is not a book about making money. It is a book about saving money. Making money is full of risks, and few people manage to make millions of dollars in the course of a single year. However, the average American will make over $1 million throughout the course of their lifetimes, and this book is designed to show you how to keep most of that. By investing it in either your education, investment opportunities or a business, you can multiply that amount many times. In the first chapters of this book, I went through some statistics that show the true financial situation of the United States, not the version that is shown by the mainstream media. Now I want to list some statistics which comes from an excellent article I read entitled "Return of the Robber Barons." This is another great article written by economist Paul Craig Roberts and you can read the entire manuscript here: http://onlinejournal.com/artman/publish/article_2263.shtml. However, to illustrate to you the true gap between the rich and the poor in the United States, I will list some statistics here which describe the super wealthy:
1. The super wealthy in America wait two years to purchase 200 foot yachts at $50 million each.
2. While the average American considers a Rolex watch to be expensive, to these people, the Rolex is nothing. Instead, the super rich purchase $700,000 Franck Muller watches. Yes, that wasn't a typo, these people spend $700,000 for a watch, much more than the average American pays for their home!
3. The wives of the super rich carry $40,000 purses by Louis Vuitton.
4. These people tend to join clubs that require you to have a net worth of $100 million or more.
5. They may sign checks with jewelry encrusted pens worth more than $500,000.
6. As far as dining is concerned, these guys eat $1,000 omelets, $50 hamburgers, and drink $10,000 martinis.
Before you assume that I'm trying to sound like MTV Cribs or Lifestyles of the Rich and Famous, there is one thing that I must make clear. My purpose of listing these statistics is not to impress you. I don't want you to be impressed by these statistics, and you shouldn't be. If anything, you should be greatly alarmed by the information that you just read. Why? To answer this question, go back to the first chapters of this book, the chapters were I laid down the financial statistics of the average American. Now compare this to the statistics listed in this chapter on the super wealthy.
Does this sound like a country that has a strong Middle Class? Or does this sound like a country that has a massive gap between the rich and the poor, one that is growing every day? This is the same group of people who started outsourcing jobs to India and China at the end of the 1990s. They are the CEOs of Fortune 500 and 1000 companies who benefited greatly from outsourcing. As Paul Craig Roberts points out in the article, the money they saved from outsourcing jobs to these countries saved them hundreds of millions of dollars, and can you guess what they did with these savings? They gave themselves and their upper management multi-million dollar bonuses. This is also the very same gang
that created the mortgage derivatives that has caused millions of Americans to lose their homes.
The billions of dollars that these executives used to pay to American workers prior to outsourcing are now used to fund their lavish lifestyles, since they save so much by hiring foreigners to replace many American workers. Now, in all fairness, I should point out that not all the super wealthy are bad. Whether you like them or not, many men such as Bill Gates and Steve Jobs have greatly benefited society. Some of these people are even concerned about the growing wealth gap between the rich and the poor in the United States.
However, the fact remains that many members of the super wealthy could care less about the future of America. They only care about themselves and their companies, and it doesn't matter to them what happens to the "little people." These are the only people who can truly consume conspicuously, but you should not be jealous of these people by any means. First off, jealously is an emotion that is a waste of time. You should never waste your time or energy being jealous of others. Instead, this energy should be used in ways which are conducive to helping you build wealth and enjoy life.
Second, many of these people are not happy. You've probably heard of the old saying "that too much of a good thing is bad." When you have too much, and you got it without a great deal of effort, you tend to destroy yourself over the long term. A good example of this is many current celebrities. Look at the lives of Lindsay Lohan, Nicole Ritchie, and all the others. Despite their wealth, we constantly have to hear about them getting arrested in the news. They are constantly involved with drugs or other negative activity. These people are not happy, and the reason they're not happy is because they "got their
wealth without much effort," and instead of using their wealth to help humanity, they only use it for themselves.
Yes, wealth without effort can be far more dangerous than poverty. Once you have so much money that it doesn't matter anymore, you should begin to think about your legacy, or what you can do for others. I'm not talking about giving money to mainstream charities. Instead, you should seek to help change
lives in a better way. Invest some of your money to find cures for cancer, or other diseases. This is what separates the truly wealthy from those who "just have lots of money."
Conspicuous Consumption is a dangerous trait that must be avoided. If you apply the things in this book, I assure you that you will become much wealthier than others in your income bracket. Once you begin acquiring this money, you will have urges to spend lavishly from time to time. When these urges arise, the question you should ask yourself is: Did I get to this point by spending conspicuously, or by careful financial planning and saving? One thing that you had better understand is that while it may take you months or even years to save hundreds of thousands of dollars, you could lose it all in an instant.
Our society is designed like this. While society makes it hard for us to save or build wealth, they make it easy to spend and lose money. This is a very important concept that you must always remember. Since society makes it hard to save money or make it, you should make it hard for money to leave out of your bank account. It is this line of thought that allows you to build wealth over time. Society tries to keep you broke in two ways, and these are what I call "physical methods of keeping you broke" and "mental methods of keeping you broke."
The first is very familiar. The physical methods include things such as inflation, taxes, debt, and hitting you with small charges like ATM fees. The mental method involves society tricking you into financially enslaving yourself. They don't put a gun to your head and tell you to go in debt, but they "persuade" you with propaganda and slick advertising. They also use tools like Conspicuous Consumption and "Bling" to make you believe that spending money on luxury goods will make you wealthier. The lack of financial education in school could be another example of the mental method of keeping you broke. By not teaching you how to balance a check book, you are more likely to go in debt, and make the banks wealthier through overdraft fees and other charges. In this book I've worked hard to de-program the financial brainwashing that you've likely been subjected to. I hope you understand the difference between what society tries to tell you, and what reality tells you. Too many people today can't tell the difference, and their financial future is seriously in jeopardy. Television shows like MTV Cribs is not reality for most of us, and I personally don't want it, because having a whole bunch of "stuff" makes you a slave to that “stuff.” This is another thing that most people don't realize. I believe I demonstrated it well in the quote I put in this chapter by Seneca. If you're a wise man or woman, wealth will be your slave. If you're a fool, wealth will be your master. When you fall for the propaganda of Conspicuous Consumption, you allow wealth to become your master. You will seek to gain objects simply for the sake of showing them off to others. The problem is, you will become a slave to the very same objects you strive for. Your ultimate financial goal should be to become financially independent, not buy a $700,000 watch or $50 million dollar yacht. Make the charges necessary in your life to start saving today and through hard work and dedication you will achieve financial security and dependence.