Let’s Stop Pissing off Millennials with the Latte Factor

coffee

We need to talk about the Latte Factor. That annoyingly undead theory, bordering on ritualistic superstition, that keeps cropping up in money sections of the mainstream press and personal finance blogosphere alike, for no apparent reason save to piss off a generation of young people.

Early retirement cometh neither from the east, nor from the west, nor from the south.
But rather from giving up frivolous expenditure on coffee and such.
Psalm 75: 6-7

If you want to find out the precise amount of money you’ve blown by living as a human in developed world, all you need to do is plug this formula into a spreadsheet

=FV ( [annual interest rate] ÷ 12 , [your age – 18] x 12 , [monthly spend on coffee, magazines, fags, etc.] )

and voilà! Now you know the true extent of the wastefulness you should be regretting. And for the spreadsheet-challenged there are online calculators.

The amount is always staggering, and its computation assumes no transaction costs, no minimum investment limit (£3 can be invested immediately) and a constant real rate of return.

So where are all the No Starbucks millionaires?

I am yet to meet an early retiree who’s achieved financial independence by avoiding takeaway coffee and avocado toast.

Whenever I point this out to the Latte Factor adherents, they’re quick to explain that it’s not meant to be taken literally. No-one is claiming it’s possible to retire merely by quitting Costa Coffee, you understand. It is a metaphor that admonishes us to never underestimate the importance of budgeting.

Well, if it’s a metaphor then someone should send a memo to Tim Gurner. He appears to take it literally, poor soul.

Dumb financial decisions are the province of the young

When you’re young, doing dumb shit with money is a rite a passage. You get your first job and you’re instantly transformed from a destitute student to a wage-earner with spare cash. Suddenly you can afford the cover charge at clubs, a Sunday paper, takeaway coffee, both avocado toast AND banana bread for breakfast, impulse shopping when the urge overtakes you, and best of all, you don’t have to worry too much about being able to afford it. Because: you’re earning a salary.

I don’t begrudge the millennials their avocado toast any more than I begrudge them their ridiculous lack of grey hair, their freakish metabolisms and stupid flat stomachs. If they want to blow their pay on overpriced granola in Shoreditch, fuck it, it’s their prerogative.

I don’t think they’re much worse – or better – with money than the generations that came before them. They’re just young, and about as financially dumb as I was at their age. And there’s nothing wrong with spending money on processed sugary food for breakfast, really, enjoy you 20-something metabolism while it lasts. Only please recycle the packaging, you know why.

Willpower is a depletable resource

The ego depletion theory has taken a hit recently. Apparently experiments carried out on small batches of hungover Psych students tasked with solving silly computer problems in a lab don’t hold up to statistical scrutiny. Never mind. Larger studies of dieters and smokers facing real life challenges do.

Call it what you want – will depletion or mental fatigue – it’s real. Motivation goes hand in hand with reinforcement, effort requires a reward, and the latter has to be in a form of something enjoyable. Few of us are able to rejoice in Excel spreadsheets with graphs that track our net worth. Just sayin’.

Small regular expenditure adds up, but

It’s not just about what you save, it’s what you do with the savings that counts.

Don’t get me wrong, quitting smoking 9 years ago was one of the best decisions I ever made. I feel better, I am fitter, and I’ll likely live longer. It has also saved me c.£100 per month on fags plus another £100 on Starbucks skim lattes, which I liked to drink while smoking. That’s £2,400 p.a., which is approximately how much two weeks’ kitesurfing in Dakhla costs.

Would I be much richer now had I not been blowing my money away for years before quitting? Unlikely. If I hadn’t spent that money on holidays and Apple gadgets, I would have spent it on Ho’s Keep. The only reason I didn’t buy more or more expensive bricks way back when was because I didn’t have the money.

And this is my main issue with the Latte Factor. It assumes that your goals and priorities have remained constant over time. Which is abject nonsense. None of us are now the same person we were at 19 or even at 29. It surely would be nice to have more money in my pension now, but I didn’t start a UK pension until I was 32. Yes, not starting a pension earlier was indeed a stupid move, but no, quitting smoking earlier would not have increased my pension savings. Because: I didn’t have a pension then.

Waste is never a good thing

Because: the planet.

But putting aside what single-use plastic bottles and styrofoam cups do to the environment, I couldn’t retire on takeaway coffee savings any more than a millennial could by a house by forswearing avocado toast. I believe the correct scientific term for any such notion is bullshit.

Over time we learn and grow

Don’t get me wrong, I’m not crazy about today’s young adults. As a group, they can be both overconfident and amazingly thin-skinned. It’s a rather annoying combination of traits: the first one ensures ample supply of dumbass mockworthy pronouncements, but because of the second one, the poor sods can’t take the mocking. 😉 I hope they grow out of it. Not everything is a personal attack, ok?

Yet I don’t think it’s fair to call the millennials spendy merely because they’re in the process of learning how to use their paychecks and credit cards. Most of us have been there and done the same. So let’s cut them some slack.

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7 thoughts on “Let’s Stop Pissing off Millennials with the Latte Factor”

  1. It was beer, hi-fi and, ahem, above all property which were my stupid spending in my 20s. Holidays and the mating game I consider useful spending. In fact forget the beer and hi-fi, I enjoyed the beer and the hi-fi is still in service and gives me pleasure. My stupid spending in my 20s was overpriced housing in 1989. You could buy a lot of smashed avocado on toast for the amout I overpaid.

    So if I could come back from that momentous cock-up the millenials can come back from their lattes and toast 😉 It’s when you get to your mid thirties and still have zero clue, then you are entering troubled territory IMO.

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    1. Exactly. There’s little excuse for being clueless in your mid thirties, and even less in your mid forties, and yet Grauniad is full of sob stories to that effect.

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  2. Wise words. They have it tough too these days with tuition fee debt and house prices at 6x the average wage, more in London I imagine. I saw an article on the beeb site the other week effectively saying they would be able to afford a house if they gave up their avocado toast. It’s not fair on them. Let them enjoy their twenties like everyone else has. I spent most of my twenties getting wrecked and burning through every pay check. Great times.
    Whilst now I walk past a costa, and sometimes pay £2.65 off my mortgage, it has more effect on my will power and resilience against consumerism than it has on my net worth

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    1. Well done to you for using savings to repay mortgage. I guess it’s whatever works. I overpay a monthly amount, and in theory would use any underspend vs budget to invest. Though so far I haven’t had the problem of having to decide what to do with the extra cash – there’s never any underspend vs budget 😉

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  3. I may be a bit broken, but my commitment to saving/investing went through the roof when I first created a net worth spreadsheet.

    It massively motivated me to track down every half forgotten savings account and unpaid in cheque and get them invested. There’s a column to show what % of my assets are in cash equivalents to remind me it is too high (I’ve some index linked certificates I’m reluctant to get rid of but I’m aware they’re a drag on returns so I keep anything else in cash to a bare minimum to compensate).

    The resulting rationalisation has probably doubled my annual unearned income, even before you consider future compounding as well as a higher savings ratio by reducing frivolous spending.

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    1. I wish I had a problem of owning half forgotten savings accounts 😉 The downside of well organised finances is of course that you never get the pleasant surprise of “finding” the money you had forgotten about.

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  4. Am sitting in an office full of early 20-somethings and they’re all chatting excitedly about what they will be spending their cash on when we get paid tomorrow. Me, I’m pondering how much I can put into my ISA! We were all young once, I wouldn’t go back in time to change the stupid (but fun) things I did with my money and the young should be able to spend as they wish, although I would hope all those youngsters at the very minimum are opted into the company pension scheme.

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