Alright, let’s talk about the “latte factor.” You know, the one that berates people for their morning coffee routine. Just in case you’re one of today’s lucky 10,000, the latte factor suggests that if instead of spending $5 every weekday in the drive-through, you saved that money in an investment account earning an average 8% interest over 40 years, you’d have an extra $300,000 at retirement. That’s certainly nothing to ignore, and when you look at it on paper (after you’ve had your coffee, of course), giving up something so small for a gain of over a quarter million dollars sounds like a no-brainer. Because the scenario fits nearly everyone’s situation, and can be easily adapted for those that it doesn’t apply directly to, the so-called latte factor of retirement savings has been touted by countless bloggers, newspapers, books, and listicles as the reason we millennials aren’t going to be able to retire. Apparently, we don’t care. Stories from Bloomberg, Vice, and the Washington Post report that we’re not only not cutting back on our coffee shop visits, we’re drinking more than anyone ever has. And we’re almost militant about it. Several bloggers have struck back, saying that coffee isn’t going to be the reason they retire with less than they need, so let us enjoy the small things. They shift the blame to underemployment, crushing student loans, underperforming markets, failing government programs such as Social Security, etc. So, who’s right? Are we drinking ourselves to poverty? Or can we continue our record-breaking obsession with those fragrant magic beans guilt-free?
Missing The Forest For The Trees
The answer is yes, because the argument isn’t about coffee. The assertion, and quite probably the reason for all the consternation, is that our lack of self-control and willingness to change our behavior is what’s driving our inability to save. I have a feeling that (some of) the bloggers violently defending their right to a tall half-caff soy latte at 120 degrees every morning are doing so because they don’t like anyone telling them what to do, especially someone who’s telling them that they won’t reap the rewards of skipping that drink for another 40 years. All they see is someone telling them they can’t have coffee and that they should reduce their quality of life “because,” and they miss the more important message: if you don’t include saving in your daily financial behavior, you won’t have any savings. The truth is, if we’re not at least willing to hear the latte factor argument out, it doesn’t matter what our “coffee” is. It could be always having a car payment, or continuing to throw money at credit card interest, or having someone else cook for you every night of the week at all the best restaurants. Those are things our culture tells us we need to do, and we often have no problem listening to it, because those things make us feel good now. I was that person for several years. My thought was that as long as I could afford the whatever-it-was, or at least the payment that month for it, I was fine. I didn’t want anyone telling me that I didn’t make enough to have everything I wanted, especially if my bank account that minute said otherwise. I didn’t want anyone telling me that my decisions now would have an impact later in life. Unfortunately, I think that resistance to advice is a hallmark of our generation. Nobody wants financial advice because we have it figured out. Nobody wants relationship advice because our significant other should just accept us for who we are. Nobody wants parenting advice because we know our child best. What I want us all to realize is that beneath these specific little nuggets of advice lies an undercurrent of experience and wisdom that we could all benefit from immensely if we’d just swallow our pride (and coffee) long enough to listen.
Habits, Not Beans
David Bach, the guy that coined the term “Latte Factor,” does not have a vendetta against Big Coffee. What he wants to do is get us to realize that our everyday behaviors have long-term impact. I have a feeling he chose coffee to illustrate his point precisely because he knew it would hit us in the feels. He wants us to look at our behavior and think “oh, wow, this thing I love doing is potentially robbing Future Me of bigger, better things?” He wants us to be more mindful, more intentional in how we live. I don’t think he’s suggesting that we whip out a retirement calculator every time we want a cheeseburger to calculate what the impact of adding bacon would be. I do think that maybe if we as a generation would look at how much we’re spending on all the little upgrades, extras, and accessories that we buy for everything, we’d be surprised at how much we spend, with maybe not as much of a quality-of-life boost as we thought. As with any long-term goal, retirement is something that takes consistent effort. Either we’re making progress toward it or we’re not. There’s no in-between. Every dollar we spend now is a dollar we won’t have in the future. That dollar may be worth spending now, or it may not. There’s no right answer, but we should at least keep that in mind and build habits around what we want our future to look like versus just what we want in the present.
I don’t care if you drink coffee. R and I have become pretty picky coffee drinkers in the past year, and we definitely don’t just buy the cheapest stuff we can find anymore. We enjoy ourselves in the now. What matters is that we consciously, continuously work towards our goals rather than expecting them to just achieve themselves. To do that, we’ve had to make some sacrifices. We eat at home rather than hitting up new restaurants for every meal like we used to. We make do with the library and other forms of free or cheap entertainment instead of going to the movie theaters every Friday. Our cars are the exact opposite of flashy. The bottom line is that we’ve realized we don’t “deserve” anything, and we absolutely should not be spending money as though we deserve everything. Our savings in retirement isn’t going to be there later if we don’t create it now, and we have to be willing to delay gratification and make lifestyle adjustments that allow us to save to make that happen. You know, like skipping a latte here and there.
What about you? Does the “latte factor” sound like reasonable advice or the condescension of someone who just doesn’t get it? What sacrifices are you making to work toward your retirement?