Weighing up your spending isn’t simple: should you invest in making your future better or enjoying life right now?
Illustration: Michele Marconi for the Guardian
Back in the 1990s, the American personal finance guru David Bach coined the term “the Latte Factor” (these days, it’s a registered trademark) and a money myth was born. You could retire a millionaire, Bach promised, just by forgoing your daily trip to Starbucks and investing the money instead!
The only problem is, you can’t. In her 2012 book Pound Foolish, Helaine Olen points out that Bach assumed a 365-day-a-year latte habit; added a daily biscotti to increase the cost; rounded up the annual total by a three-figure sum; assumed improbably high investment returns; and ignored inflation and taxes. But the Latte Factor ticked so many boxes, it didn’t seem to matter that these didn’t include the one marked “accurate”. It distracted from systemic problems, made financial security look like a simple matter of self-discipline, and implied that you could get there without sacrificing anything that mattered.
The 2017 version of the Latte Factor is, of course, estate agents berating millennials for spending money on fancy sandwiches or avocado toast, on the grounds that if they saved it, they could afford a flat in a pricey city. Naturally, the maths is also dodgy: by my reckoning, the latest story assumes an £11 sandwich every working day, plus a £100-plus weekly night out. Even if the numbers added up, though, the Sandwich Factor would still be questionable, and not only because it looks like blaming the victims of the housing crisis, but because it’s not always wiser to spend money on making your future better, as opposed to enjoying it now. That’s an individual calculation, based on how much you love sandwiches, or whether you’d be prepared to move to a cheaper part of the country. And it’s easily possible to delay gratification too much – to fall victim to what the psychologist Jack Block called “rigid impulse control”, thereby “spoil[ing] the experience and savourings of life”. Having less fun in your 20s in order to feel more secure in your 50s might be worth it, but it’s far from an indisputable truth.
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