Buying a luxury handbag these days seems to be no more uncommon than purchasing a pair of shoes at Target Corp. (TGT). The physical appeal of luxury goods is undeniable – the leather is softer, the shoes are more comfortable – but the price tag is often off-putting. Unless you’ve got a good job or fantastic savings habits, luxury consumer goods will sit on your credit card for a long time.

The Irrational Consumer

It’s well known that people don’t behave rationally, and considering the enormous consumer debt Americans have, consumers clearly don’t always act in their best financial interests. Luxury goods are a great example of how irrational we can be; a decent and sturdy handbag can be purchased for $50, yet people will still spend thousands to buy a brand name. It's always been this way and consumers' desire to own the finer things in life will likely never change.

One reason involves the way we tend to look at the positive elements of a product while ignoring its disadvantages. There’s no need to explain why this works in favor of the luxury goods companies’ marketing departments. Take Apple Inc. (AAPL), for example. Consumers wait overnight for new releases and have immense brand loyalty even though MacBooks and iPhones aren’t technologically unique or superior. In fact, Samsung makes phones with better features and Microsoft Corp. (MSFT) and Xiaomi make phones at a much cheaper price point. Nevertheless, Apple seems to break sales records year after year. The company has mastered the art of retail marketing and exerted more economic influence on us than any company in history, according to NYU Professor Scott Galloway.

Since some perceive non-luxury goods as inferior, they are quick to point out the negatives of those products. When talking about a cheap foreign car that needs repairs, it’s a piece of shoddy construction; on the other hand, a luxury car that needs repairs is just suffering from wear and tear. Some conclude that higher priced goods are of better quality and we spend irrationally, believing you get what you pay for regardless of whether the goods are proven better than their affordable counterparts.

Self-Esteem and Luxury Goods

Low self-esteem is a big factor in whether a person will buy luxury goods that they may not be able to afford. For consumers trapped in institutionalized poverty or those living paycheck to paycheck, a luxury good can go a long way in increasing self-esteem or providing a sense of belonging.

With marketing departments creating a need for luxury goods and the rise of online shopping, a $500 scarf is just a click away. Luxury goods are the ultimate retail therapy, and fortunately for luxury brands, the Internet has made them easily accessible for impulse shopping when you’re feeling blue. 

A sense of accomplishment is yet another reason why some people buy luxury goods. They want to reward themselves for their hard work by treating themselves to something they typically can't afford.

Authenticity Matters

There’s a reason why people will pass the fake Rolex sellers on the street to pay full-price for an authentic one: Despite appearing the same, the owner will know that they don't have a real luxury good.

This flies in the face of reason yet again. If we buy luxury goods to show off to others and to 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 had produced their favorite item found that most children refused to accept the duplicate as identical. It turns out that the sentimentality of the item – the memory or pride or feeling that comes from having purchased a genuine luxury good – is part of the reason that we seek authenticity. Simply put, treating yourself to fake Louboutins would be like not having treated yourself at all.

The Bottom Line

People buy luxury goods for a variety of reasons, all of which are related to the strong emotions that we attach to expensive material goods. Whether we are financially comfortable or not, we will often purchase luxury items to show off to or gain acceptance from others and to reward ourselves for an accomplishment. Now that we understand the psychology behind why people buy luxury goods, we’ll be better equipped to quash down any emotions that try to convince the rational part of our brains that the more expensive something is, the better its quality.

https://www.investopedia.com/articles/personal-finance/091115/psychology-behind-why-people-buy-luxury-goods.asp