Coffee Talk: A Big (Personal Finance) Whoop

Last week, while on vacation at the beach, I looked through my Twitter. (I’m the worst.) This lead to an interesting short conversation with my wife:

Wife: Anything interesting?
Me: People are upset about coffee spending.
Wife: Didn’t they address that like 20 years ago?
Me: Yep.

In fact, almost 5 years ago, I was late to the game with an article covering the costs of Brewing Coffee at Home vs. Buying at a Coffee Shop. It’s very detailed with a cost average of 3 coffee shops (Starbucks, Dunkin’ Donuts*, and McDonalds).

I followed that article up with a cost analysis of Single-Serve Coffee (K-Cups) at Home.

Then I combined both articles into an analysis of how much your coffee is costing you. I used an awesome latte factor calculator and realized that it could cost me 1/3 of a million dollars if I spend the coffee shop average of $1.75 each day for the rest of my (expected) life. Perhaps the most important thing I did was give you the tools to calculate your coffee costs yourself.

(Interestingly all this was inspired by a Vanguard article and video that seems to have been pulled mentioned in my first article. Maybe it was pulled because of this coffee spending “controversy.”)

One of the best quotes came from the comments that last article:

Seriously. People no longer want to talk about the coffee factor or want to talk about it only as a metaphor. But seriously, a quarter of a million dollars is as real as it gets

However, it’s 2019 so here we are… arguing about coffee spending.

It’s possible you missed the latest round of arguments. If so, let me catch you up.

Coffee is “Peeing $1 Million down the Drain”

CNBC quoted Suze Orman saying this:

If you waste money on coffee, it’s like "peeing $1 million down the drain," says Suze Orman. ?? https://t.co/boBkp7Y1Hd via @CNBCMakeIt pic.twitter.com/XMywbS0xlH

— CNBC (@CNBC) June 8, 2019

There’s (at least) five things going on here that we need to unpack.

1. People are protective about their coffee.
2. CNBC and Suze are marketing a clickbait phrase to get attention. Who wants $1 million dollars?!?! Just stop peeing it away!
3. There’s a whole Suze Orman scam movie that includes her debit card scam and a bunch of other stuff. She has a lot of good information, but in my opinion, every media appearance should be prefaced with the equivalent of the Surgeon General’s cigarette warning.
4. There’s some shoddy assumptions made to get to the clickbait $1 million dollar number.
5. People are upset about something bigger
6. The idea has real merit, hence my article above covering it.

Let’s take them in order.

1. People Protect Their Coffee

Coffee, with its caffeine, is arguable is arguably an addictive substance. There’s any number of marketing t-shirts and mugs etc. that are about pitching coffee as the most important thing.

I don’t need to waste any more words on this except to point out that I don’t have a horse in this race. I decided that coffee wasn’t for me and substituted a Diet Coke addiction instead. While that clearly backfired, it allows me to talk about coffee unbiased, the same way most people talk about cantaloupe.

You could substitute ice cream. A couple of scoops in a cone will run you $3-4, which is far less than the home price. And, of course, ice cream is objectively better ;-).

If we substituted saving $100 a month by cutting cable television, there’s almost no controversy.

2. Media and Clickbait

We find ourselves in a world of clicks. Even this website makes money from your clicks. Science shows the best way to get those clicks is with outrageous, shocking claims. I could try to make more money with those claims, but I’m hoping over the long run, you’ll trust the value of the content itself, and reject sources that use clickbait techniques.

3. Suze Orman’s Scams

I’ll let the above YouTube video that I linked to stand on it’s own. I don’t need Suze sending her lawyers after me for my opinion.

4. Million Dollar Coffee Math

Suze Orman assumes spending $3.33 ($100 a month) on coffee, where my math said the average is about half that ($1.75). Sure it can get to $3 or $4 with some types of coffee in some areas. As someone who doesn’t drink coffee, I can only go by the numbers I found and cited. I can give Orman a bit of a pass on this because I chose to use plain coffee.

Let’s keep in mind that this $3.33 coffee is paying someone else to make the coffee and the overhead with all that. It’s not just for the coffee, just like the ice cream isn’t only about the ice cream above.

Suze Orman also assumes that you are going to invest the money (not 100% guaranteed) and that you’ll make 12% return over 40 years (so unlikely, that I’d say it borders virtually impossible).

It’s been challenged by MarketWatch who gives you the real math of coffee and your retirement. This is very similar analysis to what I did in my articles listed at top of this one. A coffee habit can be as little as $20,000 over a long lifetime.

(If that seems like a lot, stick around and we’ll get to cheaper ways for you to get your caffeine fix.)

5. People Are Really Upset About Something Bigger

Personal finance has changed a lot in the 13 years I’ve been blogging. Around 2006, there wasn’t nearly as much attention on health care and college costs. Those have really started to spiral out of control. It makes sense for people to be upset about these things. I’m with you. Let’s fix healthcare. College is too expensive.

These systemetic problems, and others (stagnant wages for example), are certainly worth having conversations about. Those conversations are happening as they seem to be at the center at every political debate.

Those problems have become part of this million dollar coffee (or avocado toast) conversation. There’s certainly a lot of logic behind being upset that you can’t enjoy coffee because of a systemic problem that you had no control over.

However, my opinion is that these problems give you more reason to be mindful over the spending you can control. I think it’s a mistake to wrap up all the world’s financial problems and expect coffee spending to be hero. That doesn’t mean it can’t be part of the fix.

6. Small Habits Compound Exponentially Over Time

A lot of the time, coffee is brought up as an example or a metaphor of small daily expendatures. This has real merit.

A far less controversial topic is bringing your lunch to work each day. There’s no sane reason why it’s less controversial other than it doesn’t involve sacred coffee. The math can often add up to even more money.

I don’t think anyone is suggesting that you can never buy your lunch or coffee. I think the message is that you should look at these small, everyday money leaks as well. It doesn’t have to be a million dollars to add up to something significant.

If I was a real marketer, I’d combine the lunch and coffee spending to be $12 a day and tell you that it ends up being 4.2 million dollars using the same poor assumptions (investing 12% over 40 years). However, even at 7% over 30 years it still comes to $445,000. At 5% over 20 years, it is $150,000. That’s still a lot of money, right?

Above, I had mentioned that I had a Diet Coke addiction. At a dollar for 2-liters it isn’t exactly breaking the bank. I do drink more than I should, so it does add up. (The health costs will probably be the big thing, but let’s put that aside for now.) I’ve started to look into things like saving money with Sodastream (using much cheaper flavorings). At a cost of just a few cents per 2-liter, it might save only a dollar a day.

Unfortunately, one thing missing from Sodastream is the caffeine. However, caffeine can be extraordinarily cheap, adding as little as a couple of pennies to the overall cost.

Final Thoughts on Coffee Spending

It seems that coffee spending combines so many separate issues that it’s extremely difficult to discuss. Some of the big things like marketing, scammers, big systemic aren’t going away soon.

I can’t tell you how to spend your money, but I will suggest that you think about it. Weigh what’s important to you. Use the metaphor to explore the math. Use the math to live your best life…

… and definitely do NOT buy that coffee ;-).

* Dunkin’ Donuts, don’t give me that crap that you changed your name.