Out of Control: The Interplay of Subjective Poverty and Income on Spending

Abstract

Consumers’ spending decisions are shaped not only by their objective financial resources but also by their subjective perceptions of wealth. This research investigates the interplay between subjective poverty (e.g., feeling financially constrained) and income in driving spending. Across five studies including real-world spending data from a U.K. financial management app, longitudinal surveys from Kenya and the United States, and controlled experiments, the authors reveal that subjective poverty increases spending among higher-income consumers but decreases spending among lower-income consumers. That is, wealthy consumers who feel financially poor tend to spend more, whereas poorer consumers who feel financially constrained tend to reduce their spending. Drawing on compensatory control theory, the authors demonstrate that subjective poverty threatens individuals’ sense of personal control over life, but people cope with this diminished sense of control differently based on their available resources. Higher-income individuals engage in compensatory consumption to restore control, while lower-income individuals adopt different strategies, including reduced spending. This research advances the understanding of how psychological and material dimensions of wealth interact to shape consumer behavior.