[blaireaug]

It's a peacock's tail. In any environment where resources are abundant and there's no natural predators, species evolve to create lavish displays for sexual selection.

Buying a ring, having a fancy sports car, owning a nice house, coming from a prestigious university... these are signals for sexual reproduction. "Look at me, look at what I can afford to do!"

It does signal financial irresponsibility. Who can demonstrate such a thing? Those who are actually financially secure. But then it gets to be backwards, as those who can barely afford to live paycheck to paycheck seek out these red herrings, these peacock's tails, before actual wealth and stability.

Same thing with ties. Those used to be signals of wealth. They evolved from the cravate, used by nobility to protect their shirts whilst eating. Being wealthy, these embryonic ties, the cravates, would be made of expensive materials. When those who weren't so wealthy got ahold of them and started using them as a display, it became backwards.

We now take off our ties, or toss them over our shirts to protect from getting dirty when we eat, because they're often quite expensive!

So, yeah. Diamonds signal financial security by being financially irresponsible. We're a species evolved to pay attention to status, to these symbols more so than the real value behind such things.