Teenage take over 16 - Can we talk about pensions as a Veblen good?
There’s also free periods and I can finish early. And so for this blog I’m going to be looking at how you could boost the savings into pensions by thinking about as a Veblen good.
Saving for retirement is an essential part of financial planning, yet many people in the UK still fail to prioritise pension contributions, or even any real savings. Despite the success of automatic enrolment in workplace pensions, a significant portion of the population undersaves for their retirement. What if we could market pensions as a Veblen good? This could encourage higher savings, as opposed to a Giffen good. Both these concepts, though traditionally linked to consumption patterns, can offer unique insights into the psychology of saving and the challenges of encouraging people to prioritise their pensions.
Now, what’s a Veblen good I hear any non-economics students ask…
Veblen Goods: These are luxury items where demand increases as the price rises. Named after economist Thorstein Veblen, the idea is that the price of certain goods signals wealth and status. As the price goes up, so does their desirability, because owning such goods shows big money. So, increasing the price doesn’t decrease the demand.
Giffen Goods: These are essential items where demand maintains as the price increases, named after economist Sir Robert Giffen. Unlike typical goods, Giffen goods defy the usual laws of demand. As the price goes up, consumers can’t afford other substitutes, so they end up buying more of the higher-priced item despite its cost. It’s an unusual situation where necessity drives increased demand, even with a higher price tag.
Both Veblen and Giffen goods behave differently from what traditional supply-demand curves suggest, but for different reasons. How does this tie into pensions? The act of saving for retirement might not seem immediately comparable to purchasing a luxury item or an essential commodity, but why can’t we frame them this way?
Portraying pensions as a Veblen good - a status symbol?
Traditionally, pensions aren’t thought of as luxury goods. In fact, they often seem more like a necessity. But by applying the concept of Veblen goods to pensions, we can rethink how individuals view long-term saving.
While a pension doesn’t carry the same visible status as a designer handbag or an expensive car, it can signal financial stability and foresight – traits often associated with status. Should significant pension savings serve as a marker of financial intelligence, responsibility, or even superiority? Should we be positioning those with larger pension pots as being more “in control”, savvy savers, not nerdy no-mates.
Can we make people save more by increasing social status?
How do we transform the idea of saving into a pension into something desirable, like a Veblen good? We need to change the narrative around pensions. Mum says we need to have a big word with the people in compliance. But ultimately we need to move away from them being a mundane obligation to a badge of success.
The marketing bit
To stimulate higher contributions, especially in middle to higher earners we need to:
- Social proof – let’s put pensions on the advertising map, let people hear from famous people and regular people who actively save and invest in pensions highlighting their success. Showcase these people and their strategies to help shift perceptions.
- Visibility of pension success – much like social proof people need to see the wealth and security gained from pensions. People need to feel comfortable and trust that pensions are a great idea. While you can’t “see” someone’s pension in the way you can see a luxury car, we can still do more.
- Highlight the value of generous employers – where employers are giving more than just the minimum contributions this should be promoted as an exclusive benefit, making those jobs or sectors aspirational.
If we can attach that sense of aspirational value to pensions, we may see the “Veblen effect” take hold – more people choosing to save because of the status and security it represents.
The goal is to shift the perception of pensions from something people reluctantly pay into to something they actively want or need. Prestige can offer a fresh way of thinking about encouraging pension savings (if it will get through compliance).
That’s all for this blog, Now the next time you’ll hear from me I’ll have completed the senior maths challenge, and will be locked in to my current subjects.
