So why are there people who spend thousands on audio gear?

There’re a couple answers to this… One is - most consumer electronics are designed to play sound, not music. A digital audio player with stock earbuds isn’t very musical, it’ll just reproduce sound in a machine way; a dedicated hi-fi system is built to be faithful to the original recording (hence the term, “high fidelity”). There’s no “better” in electronic sound - there’s only “more accurate”.

However, human mind cannot be deceived for long by an illusion of live performance created by a record played by any kind of electronic gear. First it becomes obvious the cheap headphones (or speakers) are leaving out instruments in a mix or making them difficult to hear.
The first upgrade reveals there were many details missing in music reproduced by the cheap (or bundled) headphones. But then even the more advanced illusion is dispelled as that model of headphones reveals it is a bit slow and laggy in response, and lacking realism next to a newer model with better dynamics and wider frequency response.
Then another upgrade of headphones reveals the graininess and stillness of a digital player’s sound, while still sounding acceptable with a soundcard. Then it becomes obvious that old interconnect cable is filtering out high frequencies, leaving out some of the excitement. And so on - every single upgrade of a component calls for another, and all of a sudden there go the thousands. After all, it’s all about the transmission of magic of music, and when magic fades, it has to be invoked again - at a more evolved level.

Which is why in the end, one may not have the money for several cheap acquisitions. A single all-in-one kit costing 500 Euro that is sufficiently clean-sounding can end up being cheaper and a better value than several loose components bought over a longer time stretch.