Buying a luxury handbag is not an uncommon purchase for many people. It may even be just as common as buying a shirt at Target. While the appeal of luxury goods is undeniable—the leather is soft, the logo is flashy—the price tag can be off-putting. Unless you’ve got a good job with a high salary or have fantastic personal savings habits, buying luxury consumer goods can be cost-prohibitive. In some cases, it may create a credit card balance that isn't easy to pay off. So why do people make these extravagant purchases?
Key Takeaways
- Buying luxury consumer goods can create an undue financial burden unless you can afford to do so.
- The luxury goods market is worth billions and will continue to grow by 2030.
- Some of the reasons why people buy luxury goods when they can't afford them include a sense of irrationality, the supposed quality, the impact they have on self-esteem, and a sense of accomplishment.
How Big Is the Luxury Goods Market?
A luxury good is a product that is deemed non-essential. This means that consumers don't need a luxury good to live. Examples of luxury goods include clothing from high-end designers, designer luggage and handbags, jewelry and watches, estates, high-end vehicles, and certain accessories.
Demand for luxury goods typically rises when incomes do so when the economy flourishes, people tend to loosen their purse strings and spend more on items they don't necessarily need but want. Research indicates that people cut back on non-essential spending across the U.S. and Europe in 2022 even though demand for these goods was high.
The luxury goods market in 2022 was estimated at $242.8 billion. This number is expected to increase to $369.8 billion by 2030—almost a third of this ($115.4 billion) is expected to come from luxury apparel alone.
Some Consumers Aren't Rational
Consumers aren't always rational. A perfectly rational person would always act in accordance with reason or logic. This means that a perfectly rational person would always act in their own best interest. This includes acting in their own best financial interest.
According to some modern behavioral psychology studies, many consumers who buy luxury goods are not in a financial position to afford luxury goods. The proof may be in the high rates of consumer debt in America. Total credit card debt for the first quarter of 2023 was $986 billion. Depending on how you look at it, this may be evident that many Americans don’t always act in their best financial interest.
While a high-quality, durable handbag can be purchased for around $100, some people opt to spend thousands of dollars on a luxury-brand handbag that performs the same function and is of the same relative quality.
Does the Higher Price Equal Higher Quality?
One possible explanation for this is the human tendency to overemphasize the positive elements of a product and ignore its disadvantages. Great marketing and brand power may be among the reasons behind this. For instance, many consumers wait overnight for new releases of iPhones, iPads, and Mac computers even though Apple (AAPL) products aren't technologically unique or superior.
In fact, Samsung offers more variety and (according to some experts) more bang for a consumer's buck when it comes to smartphones compared to Apple. And consider the fact that Microsoft (MSFT) and Xiaomi make phones that typically have a cheaper price point. Nevertheless, Apple experiences a high degree of brand loyalty and seems to break sales recordsyearafter year.
Because some peopleperceive non-luxury goods as inferior simply by virtue of them being non-luxury (and not on the basis of their characteristics or qualities), they also come to the conclusion that higher-priced goods are of better quality. Contrary to the evidence, they may believe that you get what you pay for, regardless of whether the goods are actually better than their more affordable counterparts.
Did you know you can also invest in the luxury goods market? There are a number of exchange-traded funds (ETFs) and mutual funds that track this market.
Self-Esteem May Impact a Person's Purchases
A person's self-esteem can be a factor that influences some people's decisions about whether they purchase luxury goods. This may be especially true if they can not easily afford the cost of these items. For some consumers, a luxury good can go a long way in increasing self-esteem, providing a sense of belonging, and even higher status.
With the rise of online shopping, a $500 scarf is just a click away. For some people, luxury goods are the ultimate retail therapy. Fortunately for luxury brands, the internet makes them easily accessible for impulse shopping.
A sense of accomplishment is another reason why some people buy luxury goods. They want to reward themselves for their hard work by treating themselves to something they typically could not afford.
Authenticity Matters
There’s a reason why people may decide to pass up a fake Rolex in order to pay full price for an authentic one even if they look identical. Despite appearing the same, the owner will know that they don't have a real luxury good. But this doesn't appear to be a rational choice: If we buy luxury goods to show off to others and feel like we belong, why wouldn’t a facsimile do the trick?
Researchers at Yale have determined that this quest for authenticity develops early in childhood. A study that tried to convince children that a cloning machine produced their favorite toy found that most children refused to accept the duplicate as identical. It turns out that the sentimentality of the item—the memory or feeling that comes from having purchased a genuine luxury good—is part of the reason that we seek authenticity.
In other words, for some people, treating yourself to a pair of fake Christian Louboutin brand boots would be the same thing as having not treated yourself at all.
What Are Some Examples of Luxury Goods?
The luxury goods market is made up of goods that are deemed non-essential. This means that these goods are not necessary for people to live. Some examples of luxury goods include high-end apparel, luggage, and handbags, jewelry and watches, luxury cars, and residential estates.
What Are the Most Common Luxury Goods that People Purchase?
Some of the most common types of luxury goods that people tend to purchase include high-end designer apparel and handbags, jewelry and watches, and luxury cars. Apparel is so popular that this segment is expected to be about one-third of the luxury goods market by 2030.
How Can I Spot a Fake Luxury Good?
Counterfeit goods are more common than most people think—especially when it comes to the luxury good market. One of the most obvious ways to spot a fake is by the price. If it's too good to be true, then it probably is. Be cautious if someone sells you a designer handbag that normally retails for $3,000 for $100. You can also tell a knock-off from the real thing by the craftsmanship. Counterfeit luxury items may be shoddily made. Counterfeiters also use fake logos or alternate spellings of brand names.
The Bottom Line
People buy luxury goods for a variety of reasons; nearly all of these reasons are related to the strong emotions that we attach to the purchase of expensive material goods. Whether or not a consumer is in a financial position that allows them to be able to purchase a financial item, they may decide to purchase it anyways in order to achieve a certain feeling—for example, a feeling of accomplishment from hard work—or to gain acceptance from others.
