Most times, it is not lattes that are the problem!

[Nika]

Most people are not put in financial distress by Starbucks. Yet financial experts on the news tend to focus on that, when in reality, for many families is things that they find non-negotiable that they struggle to afford.

And telling them "you can't afford to keep your kids in this school" or "you can't afford to live in that neighborhood" would not be so well-received as telling them don't drink coffee. People do not want to hear those things.

The problem for many people is the expectation of a certain standard of living that we hold -- certain neighborhood, a room for every child, a yard, etc... that they feel they should not have to compromise on. (because they work hard, they are smart, thats how everybody lives, that is where they belong, their kids should not be "short-changed"...)

So perhaps we should stop acting as if cutting that $60 a month on coffee is all a person needs to do to afford to stay in a 600K house on a 100K salary. Most of our society's problems are not caused by Starbucks.

Thats my rant for the morning.

[bjl584]

I've never seen a news report blaming Starbucks for the debt epidemic in America, but I think I get what you are saying. We should focus on the big issues and not the small ones? That being said however, when you add up all of the small things it often equals a pretty big number. Daily Starbucks plus a gym membership plus a smart phone plus internet and cable plus eating out everyday can add up to hundreds of dollars a month fairly quickly.

A good financial practice is to focus on EVERYTHING. The small and the big.

[JoeP]

Good post!

Another observation I've made is that many families suffer from what you might call "upgrade mentality." Put simply, their goal is to always buy or enjoy better products or services as time goes on, regardless of economy or income. I've seen first hand families that get bigger and more expensive cars, another jet ski, a bigger TV, a bigger house, a better cable TV package, and my favorite: upgraded smart phones every other year.

Perhaps the Starbucks analogy fits here: people enjoy the luxury of expensive coffee because it was an upgrade from the Office Grade Swill they have at work, and they don't feel this is something they want to downgrade.

[disneysteve]

I think it's a valid point but I still think the "latte factor" is important. Most people are in financial difficulty due to two things: their homes and their cars. The problem is that neither of those is easy to fix. It is the day to day spending that is much easier to correct.

Example:
Cell Phone: $100/month
Cable TV: $125/month
Gym membership: $49/month
Weekly movie night with spouse: $80/month
Ordering out for lunch daily at work: $200/month

It is not hard to see where people can burn through hundreds and hundreds of dollars each month on stupid stuff and luxuries. So maybe you're stuck with a costly mortgage and you're upside down on the loan so can't sell it. But if you slash your spending by $500 or $800 or $1,000/month, that mortgage won't be nearly as big a burden.

[SnapDuck]

I think it's more of what the "latte factor" represents, the willingness to spend a little more on things you don't need. A few extra hundred square feet in your house, maybe a model higher or few years newer on your car, it can really be anything. The reason coffee is singled out is because it is probably one of the easiest examples to identify with. That and the "few hundred extra square footage of house factor" doesn't have the same ring to it.

[disneysteve]

I think it's more of what the "latte factor" represents, the willingness to spend a little more on things you don't need.

Right, and it is an easily understandable way to illustrate how small leaks sink big ships. Sure, that daily coffee stop might "only" be $3 but that's over $1,000/year. Maybe you "only" spend $8/day on lunch at work but that's $2,000/year.

Most people haven't got a clue how much they are spending or where their money is going. All they know is that its gone. The "latte factor" is a simple way to show them how cutting back in a bunch of seemingly insignificant places can add up to serious money over time.

[bjl584]

Right, and it is an easily understandable way to illustrate how small leaks sink big ships. Sure, that daily coffee stop might "only" be $3 but that's over $1,000/year. Maybe you "only" spend $8/day on lunch at work but that's $2,000/year.

Most people haven't got a clue how much they are spending or where their money is going. All they know is that its gone. The "latte factor" is a simple way to show them how cutting back in a bunch of seemingly insignificant places can add up to serious money over time.

A coworker of mine recently came to me for help. She said that she can't afford her rent and still buy groceries. She claimed that she has nothing to cut out. Within 10 minutes I came up with 4 distict things that she could cut out or cut back on. It was enough to easily pay her rent and buy groceries and even gave her some money left over. And this was just taking a quick glance at her situation.

I think this is another problem. Not only do people not know where their money is going, they also think that there is no possible way to trim spending. It's almost like $3 a day on coffee is somehow necessary. Almost like, that's just how it is and that they can't possibly cut it out and still survive. Something so easy for me to understand is a completely foreign idea to some people.

[riverwed070707]

I agree its both, but the point of the latte factor is to show how the little things add up. A lot of people think of a $3 coffee every morning as a small indulgence, but when they look at the bigger picture and see they've been spending $100/mo on coffee they suddenly see it as more than a small indulgence.

When you're talking about houses, hundreds of thousands of dollars seems like a lot no matter how you dice it so people are less inclinded to relate to the savings they may realize from keeping their starter home a few more years. It also doesn't have instant results. I 100% agree with the OP that there is a bigger problem, and as someone who downgraded from a 2600 sq ft home to 625 sq ft I also know first hand the financial freedom smaller houses and paid off cars can provide, but I think we're examining two different issues here.

[disneysteve]

A coworker of mine recently came to me for help. She said that she can't afford her rent and still buy groceries. She claimed that she has nothing to cut out.

This is the ideal example of why the "latte factor" matters. This woman was convinced that she couldn't pay her rent. In reality, the rent wasn't the problem. The problem was all of the little stuff that all added up to suck up her paycheck leaving not enough money remaining to pay the rent. Fix the little stuff and what you once thought was a big problem (can't pay the rent) magically goes away.

[snafu]

I think people in financial difficulty are unaware of how much they pay in interest and how much they dribble away in 'small indulgences' in a year. In other cultures everyone works, contribute to family expenses and are sufficiently disciplined to save at least 10% of of all income no matter the source. They don't fall for the marketing campaigns that leave the impression that 'you deserve it!'

[JoeP]

I agree its both, but the point of the latte factor is to show how the little things add up. A lot of people think of a $3 coffee every morning as a small indulgence, but when they look at the bigger picture and see they've been spending $100/mo on coffee they suddenly see it as more than a small indulgence.

The small expenses fall under the radar. Steve nailed it mentioning "small leaks." Ask those people to pay $1000 up front for a coffee card which is good for a coffee a day, and you'll get a totally different reaction.

[Emerald]

Coffee is a line item in my budget.

[laurend1985]

I understand what they are talking about but like Brian said little things do add up, a latte here, then Omaha steaks there, then a nice restaurant here, then an expensive vaca there. Then you are in a mess again LOL.

[Like2Plan]

Coffee is a line item in my budget.

+1 You beat me to it, I was going to say the same thing. LOL

[disneysteve]

Ask those people to pay $1000 up front for a coffee card which is good for a coffee a day, and you'll get a totally different reaction.

That's a great way to think of it. Look at the total cost as if it were an up-front cost and then see how you feel about it. I like that.

As a physician, I regularly counsel patients on quitting smoking. The cost is often one factor that I bring up in the discussion. When I mention various prescription aids to quit smoking, the response I get is often, "My insurance doesn't cover that. I can't afford it." I'm always a bit amused when somebody who smokes 2 packs a day at $7/pack tells me that they can't afford a pill that may enable them to quit smoking when the pill might only cost $5/day. They spend
over $400/month on cigarettes but think they "can't afford" $150/month on medicine to help them quit.