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The Latte Factor: Spread The Message Without The Shame

Fork in the road A or B

by Kimberly Roy, Manager Programs

There is a lot of discussion in the financial education world about the “latte factor.” This idea originated as a way to raise awareness about how small daily expenses add up to more significant amounts over time, e.g., a cup of coffee that costs $5 every day, five days a week, costs $1,300 over an entire year. If you invested that amount over 30 years, at 6 percent interest, you would have X saved for retirement.

Recently, the latte factor has been criticized for seeming to shame people about their daily habits, or to insinuate that someone who struggles financially would be well-off if only they gave up their daily coffee. The concept has been viewed as especially degrading to families struggling with real poverty issues. Critics of this approach say it implies that if people living in poverty did not smoke or eat fast food they would miraculously have enough money to overcome rising housing costs and move to upper-middle-class neighborhoods.

Rethinking the Latte Factor

Educators need to keep in mind the original intent of the latte factor concept. The lesson is meant to be an educational tool to empower students, not to shame them. Understanding how small expenses can add up to real savings over time encourages students to make mindful daily decisions and to see that that many of their financial goals are within their control.

If you want to teach the concepts behind the latte factor without the judgmental tone, review the HSFPP “Plugging Spending Leaks” lesson and consider teaching in collaboration with other foundational concepts that emphasize how the unique perspectives and values of individuals shape financial decision making:

1. Understanding Personal Money Values and Beliefs

Every person has different money values and beliefs that influence their financial decisions. Often consumers are unaware of how these values and beliefs impact not only their personal finances, but also their relationships with others. Becoming aware of underlying values and beliefs helps teens make more mindful, intentional financial choices and helps them to have more productive conversations with friends and family members who have different values and beliefs.

Important Note: Certain values and beliefs should not be held up as examples of good or bad. We all have different money values and beliefs that may change and grow over time, but they are personal. This exercise is not to tell students what their values and beliefs should be, rather for them to understand what is driving their decisions and what matters to them.

2. Exploring Personal Financial Goals

Do your students dream of owning a car, going to prom, saving for the band trip to New York or buying a new cellphone? What are the short-term and long-term personal financial goals that your students dream of achieving? Learning how small amounts add up is more impactful when viewed through the lens of how that money saved can be used toward a goal that they value.

3. Opportunity Cost is Key

Opportunity cost should top your list of must-teach personal economic concepts. Students should be mindful of not just how much money they are spending on daily small purchases, but what else they could purchase with the same amount of funds. Have them compare what they are purchasing currently versus what they could purchase. At the core, opportunity cost simply states, “if A, then not B.” If you buy your daily coffee, then you will not have that same money to spend on your goal to rent a limo for prom. What is more important to you? The key is not to tell students what their decision should be, but to enlighten them that they are making these decisions every day.