Financial author David Bach introduced the Latte Factor as a metaphor for all the small indulgences we regularly treat ourselves to that add up over time. It wasn’t meant to single out Starbucks as the main culprit for our financial woes, but somehow millennials feel the need to stand up for their beloved coffeehouse and defend their right to buy an obnoxious drink whenever they damn well please.
Helaine Olen (not a millennial) made people feel good about buying lattes again when, in her best selling book, Pound Foolish, she explained how the Latte Factor is a lie and buying coffee every day is not why you’re in debt. No, instead it’s the big things: housing, transportation, health care (in the U.S.) that are more difficult to cut back on.
More recently, this author whined about how millennials were being judged on their spending choices, criticizing a survey that revealed millennials spend more on coffee than on saving for retirement:
“Millennials are continually being accused of wasting money on supposedly frivolous things. In October, an Australian man named Bernard Salt wrote that he had had enough of seeing young people ordering “smashed avocado with crumbled feta on five-grain toasted bread at $22 a pop and more. Twenty-two dollars several times a week could go towards a deposit on a house,” wrote Salt.
According to my calculation, if millennials were to abstain from their avocado toast three times a week, they’d save around $3,432 per year. Which isn’t all that much, in reality.”
Oh really? And in what reality is $3,432 not that much money? According to the author, life is unfair and millennials should just give up on the idea of owning a home, or saving for retirement, so just let them have their damn latte and $22 toast.
My take on the Latte Factor
“Take care of the pence, and the pounds will take care of themselves.”
The Latte Factor is not about Starbucks. It’s not about denying you the odd frivolous treat if you enjoy it. It’s about mindless, habitual spending that squanders your discretionary income and hurts your ability to save for those bigger goals.
But, at the risk of offending an entire generation, here’s what’s really going on: If you’re buying coffee every day, or ordering $22 toast several times a week, maybe you’re just lazy. You’re lazy, and you don’t know how to cook. You’re too lazy to brew your own coffee at home and cook for yourself.
(It’s not just you. I did it, too.)
How hard is it to make a cup of coffee? Oh, you don’t have time in the morning? Get a programmable coffeemaker, make it before you go to bed and set the timer so it’s ready when you wake up. Or maybe, I don’t know, wake up earlier.
There’s a Starbucks and a Tim Horton’s on the University campus where I work and every morning there are dozens and dozens of students, faculty, and staff lined up to get their coffee fix. That is mindless habitual spending. It’s different than enjoying a Grande, Iced, Sugar-Free, Vanilla Latte With Soy Milk once a week at Starbucks.
Buying lunch every single day. That’s mindless habitual spending. That’s the Latte Factor. It’s different than enjoying an expensive charcuterie board with your partner once in a while.
Yes, we need to get the big decisions right. But those aren’t daily decisions. Don’t buy too much house. Shop around for the best mortgage rate. Spend a reasonable amount on a car and resist the urge to upgrade every 2-3 years. Invest in a low-cost, broadly diversified portfolio and don’t trade too often.
By the way, these things aren’t mutually exclusive. You can make smart choices on the big things in life while also keeping an eye on your daily spending.
The Latte Factor is about how your daily habits shape your financial future. It’s not an attack on your irregular indulgences. So go out and enjoy your fancy drink. Just don’t lose sight of the fact that small mindless purchases can turn into big money leaks over time.
In addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on his site on January 20th and is republished here with his permission.