It’s never just been about coffee.
Recent events have shaken the personal finance realm, with discussions brewing over spending habits. Chase sparked a Twitter backlash by criticizing millennials for their daily coffee runs and meals out instead of saving at home. Senator Elizabeth Warren responded sharply, questioning the bank's focus on customers’ savings when they had received a massive bailout. Chase quickly deleted the tweet.
Following this, author David Bach released a new edition of his book, The Latte Factor. The concept is familiar: skipping that daily $5 coffee could save you $1,300 annually. If invested wisely, that could grow to $22,500 in ten years and over a million by retirement. This assumes a conservative return of 6.5%; the often-cited 10% is unrealistic, particularly for young adults just starting out.
Last week, a CNBC segment featuring Suze Orman gained traction. She echoed the sentiment of making coffee at home, claiming that saving $100 monthly in a Roth IRA for 40 years could yield $1 million. Her analogy of “peeing money down the drain” while buying coffee struck a chord.
The backlash has been significant, with reactions featured on Eater and CBS News. Sallie Krawcheck, CEO of Ellevest, criticized the “latte” advice as condescending and even marketed mugs proclaiming, “Just buy the f***ing latte.”
Here are a few thoughts to add to the conversation:
Firstly, after decades in personal finance, I’m tired of the coffee analogy. It’s been repeated for over 30 years, yet it’s challenging to find relatable alternatives for everyday savings. For instance, while cutting back on streaming services or rideshares might help, they don’t resonate with everyone. Lunch expenses, however, are a significant area for potential savings, especially since Americans waste a lot of food. With a median household income of $75,000, the almost $7,200 spent on food — including $3,200 dining out — demonstrates the need to scrutinize these costs.
Secondly, I often indulge in my morning coffee and appreciate that small joy in life. If your coffee brings you happiness, enjoy it. This is about making choices with your discretionary income. It’s not solely about coffee; it can be anything from smoothies to in-app purchases. The critical lesson I emphasize for parents is that money is finite and requires thoughtful allocation. Many people, nearly 20%, aren't saving at all, as noted by Bankrate. Therefore, it’s no surprise that the recent Federal Reserve report revealed 40% of Americans couldn't access $400 in an emergency.
What’s the answer? Higher wages could alleviate some financial stress, allowing for better healthcare and education access along with life’s little pleasures. In the meantime, try tracking your expenses for a month. It’s tedious but enlightening. Whether you choose old-school pen and paper or an app, this exercise will clarify your spending patterns. With this insight, you can decide what spending truly matters to you.
If you choose to keep your coffee habit, I might see you at Starbucks. I’ll be the one enjoying a Grande misto with a splash of 2% milk and two Sweet & Lows. If not, feel free to choose your own f***ing metaphor.
