A hedge fund manager who earns $2 million annually scrolls through listings for luxury penthouses on her phone. Despite her high income, she feels financially inadequate when measuring herself against her billionaire clients, a perception that pushes her toward ever-greater levels of consumption.
Meanwhile, a lower-income household earning $100,000 annually also feels financially squeezed, but responds differently, postponing a purchase, reducing discretionary spending, and tightening the budget.
New research by Silvia Bellezza, an Associate Professor of Business in Columbia Business School’s Marketing Division, coauthored with Professor Joe Gladstone of UC San Diego, shows that the psychological experience of poverty does not affect everyone the same way.
“If you're rich, but you don't feel that you’re as wealthy, you compensate for this deficiency through consumption," Bellezza says.
At the heart of this difference lies an individual’s threatened sense of control over their life’s outcome.
Follow the Money
In one core analysis, the researchers linked survey responses from 2,026 users of a British financial management app to a full year of their bank-recorded income and spending—more than 2.2 million individual transactions. Instead of asking people what they thought they spent, the researchers examined what they actually spent.
They then tested the same interaction in different contexts across the globe. A longitudinal study of 300 Kenyan households tracked every financial transaction over 17 months, generating more than 400,000 records. Lastly, a U.S. national panel survey of more than 2,500 older adults allowed the researchers to examine whether feeling financially poor predicted future spending.
Feeling Poor at the Top
Among lower-income individuals, feeling financially constrained leads to reduced spending. That result aligns with standard economic intuition: when resources feel scarce, people conserve them. However, among higher-income individuals, the effect flips.
When affluent consumers feel financially constrained, they spend more. In transaction data, the increase is especially visible in higher-status retail sectors—brands that signal identity and social position. In that way, the behavior is psychological rather than purely economic.
“We tend to compare ourselves to people who are above us. If you feel secure where you are, that's not a problem. But if you don't feel secure where you are, that can lead to compensatory mechanisms that can happen regardless of where you are on the income distribution,” Bellezza says.
Bellezza explains that what matters is not just objective wealth, but the, “interaction between how wealthy we objectively are and how wealthy we think we are.” People often compare themselves against those who are wealthier. Even individuals in the top income brackets may feel insecure if their reference group is wealthier still.
The Psychology of Control
Feeling poor causes wealthy individuals to spend more due to feeling a loss of control, according to Bellezza’s findings. When the researchers reduced participants’ sense of control experimentally, the income-based divergence in spending appeared. Conversely, when they restored control, the divergence disappeared.
Subjective poverty, or feeling financially constrained regardless of actual income, diminishes people’s sense that they can shape their life outcomes. That perceived loss of control creates psychological discomfort. For lower-income individuals, the loss of control reinforces real material constraints, so cutting spending becomes a rational and stabilizing response.
For higher-income individuals, however, the threat is often symbolic rather than material, since they have the financial resources. What is threatened instead is their identity and status. In that context, spending can serve as a compensatory mechanism that restores agency, a sense of stability, and reasserts who they are.
Consumption, in other words, can become a substitute for psychological security.
Bellezza notes, however, that compensatory consumption does not necessarily solve the underlying insecurity. “Relying on products to compensate for other self-deficits that we have is not the most effective way,” she says.
The New Psychology of Spending
The findings challenge a foundational assumption in consumer behavior, which is that financial strain uniformly suppresses spending. Instead, income fundamentally moderates the relationship between financial feelings and financial behavior.
This complicates predictions about how consumers will respond to economic uncertainty. The same perception of constraint can tighten budgets at the bottom of the income distribution and stimulate spending at the top.
Bellezza’s findings also highlight the growing role that social comparison plays in consumption. In a consumer environment saturated with curated lifestyles and visible wealth, subjective poverty may be widespread, even among objectively affluent consumers. And when that feeling emerges at the top, it can fuel additional consumption rather than restraint.
