What Is Your Latte Today?
I have been in consumer finance for a long time, starting in the early 2000s. I worked in mortgages on Wall Street, saw first hand the growth of subprime mortgages, the eventual downfall and the financial crisis that ensued. As seen in “Big Short” the movie, a stripper was able to purchase five houses by making up income information and at the encouragement her mortgage broker. Whose fault was it when she eventually lost those houses? Wall Street did not pay for its actions. Main Street certainly did. How do we make sure it does not happen again?
When I researched the financial health of every day consumers this past year, the results were surprising and sad. Forty percent of average middle class can not come up with $400 for an unexpected expense without borrowing or selling something. About twenty-five percent of Americans see their paychecks vary week to week. Ten percent of Americans are regularly late on a bill in any given month. Only twenty percent of Americans have saved for retirement. Two thirds of millennials have not saved for retirement at all.
As an experiment, I tried to engage people in a conversation about personal finance. I asked the $5 latte questions to a Moms group I belong. The results were fascinating. No one cared for my $5 question! Moms are very protective of their coffee, and rightfully so. People don’t like to be preached to or berated for their buying behavior. And it’s hard to make a connection between present day sacrifice and future comfort. So I started thinking, if it’s not the $5 latte, then how can we encourage people to save, and be financially savvy in general?
I started becoming more aware of my spending habits and looked for a latte. It just so happens I take a class in Manhattan twice a week at night these few weeks. When I get back to my town right across the Hudson river, there are usually cabs waiting at the train station. It takes five minutes for me to get home in a cab, and it costs $6 including a $1 tip. My house is a just couple blocks from the bus stop and it takes five minutes to walk home from the bus stop. Just out of curiosity I looked up the bus schedule. It comes every ten minutes. I never knew that and just assumed it wasn’t very frequent. The bus costs $1.60. I got in line for the bus, took the bus and got home in 15 minutes including the walk. That was not bad at all! I saved $4.50 without sacrificing much and felt good for having done that. There, that’s my $5 latte. I think I am going to take a bus every time now.
Can we all save $5 a day? Bring a lunch instead of eating out. Take a bus instead of a cab. Take a train instead of Uber. Cook dinner instead of ordering in. Cut out one item in that online shopping cart. So if you save $5 every day, five days a week, and put that money in a savings account earning 0.50% per year, in ten years, you will have $13,000. In twenty years, you will have $27,000. If you invest that money and earn an average return of 5%, you will have $17,000 after 10 years and $45,000 after 20 years. You can pay for one year of college for a child if you just cut out one latte a day and invest that money the day he or she is born. Don’t skip your latte if you love it! Please don’t. But can we all find a “latte” somewhere else during our day? I wonder how many people will actually be interested in playing the “what is your latte today” game…
I am starting this group and this series of writings hoping to use my knowledge in consumer finance to start a dialogue and create awareness on how best to approach personal finance. I don’t plan to take away anyone’s lattes; I understand it’s very personal and often emotional. I write much better after my latte! But I am also tired of the rich getting richer and the poor struggling more and more. I want to do all I can to help those that seek good information and want to better their future. I understand reading financial information can often be overwhelming. I will do my best to distill the information into understandable soundbites for consumers and point you to the right direction.
By the way, if you are interested in a tool to help with savings, check out Digit. Digit helps you save money, without thinking about it. It takes a few short steps to connect to your checking account, sends you text messages and then just sit back and watch your savings grow. There is a $3.99 monthly fee but it may be worth it.
