poverty effect

poverty effect
n.
A reduction in consumer spending based on a perception of relative poverty caused by the decreasing value of stock market portfolios.
Example Citation:
"Some economists are already talking about a 'poverty effect' caused by sinking stock prices. This, of course, is the reverse of the 'wealth effect' — where fattening portfolios boosted spending confidence. A good number, unfortunately, didn't sell stock to make the purchases. Rather, they used it as collateral to borrow more money."
— Froma Harrop, "Tough financial lessons," The Denver Post, March 29, 2001
Earliest Citation:
"Now this 'wealth effect,' as it is known, is being unwound, and the economy may soon feel the chilling impact of a 'poverty effect.' Simply stated, says Nobel laureate and Massachusetts Institute of Technology economist Franco Modigliani: 'The stock market controls the wealth of people. If they are poorer, they are less likely to buy Ferraris."
— Karen Pennar, "That Rumble You Hear is Called 'Recession'," Business Week, November 2, 1987
Notes:
Both poverty effect and its prosperous cousin wealth effect were around in the late 1980s and early 1990s, the last time we reached the end of a boom and the beginning of a bust.
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