Personal Finance » Spending

Latte factor: Scam or symbol of overspending?

The Starbucks latte is as delicious as it is ubiquitous in our culture. This heavenly concoction of espresso, steamed milk, foam, and flavorings is a daily indulgence for many.

However, at over $4 a pop, I virtually never buy these delights. My beverage of choice is a homemade, icy, Frappuccino-style vanilla beverage. I’ve perfected a recipe at a tenth of the cost.

David Bach used the term “the latte factor” in his books Finish Rich and The Automatic Millionaire to make the point that many small purchases are terribly destructive to our finances. The little things we splurge on every day add up to a lot of money that could be better used elsewhere to improve our financial situation. I wrote about this in a previous column called Spend Less and Drink More Lattes

Why then does Helaine Olen slam the latte factor in her book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry?

I can’t imagine that Olen would disagree many little expenditures can add up to big amounts. Most people spend hundreds of dollars a month on junk they don’t need and do nothing to improve their finances.

I like that Olen tackles financial “gurus” like Suze Orman, who I have little regard for, as well as Dave Ramsay and David Bach.

In chapter 3, The Latte is a Lie, Olen takes shots at these writers, objecting that they sell products (a conflict of interest, I agree) and sometimes dispense questionable advice. I’ve read the material of both Daves and disagree occasionally, but their advice generally would improve anyone’s finances. It should help you avoid the classic money mistakes that see most people falling short of achieving their financial and retirement goals.

Is the cost of a daily latte the cause of the money woes of North Americans? Of course not! However, two people doing that every day spend $3,000 in a year. Add in the other extravagances and you have a great deal of money that could be better used to create an emergency fund or for proper insurance, retirement savings or children’s education savings.

Olen rightfully calls out folks such as the hucksters who sell dangerous get-rich-in-real-estate schemes and those who peddle their day-trading seminars.

In chapter 7, An Empire of Her Own: The Truth About Women and Money, Olen tackles the essential topic of women usually managing family finances despite lacking many of the skills. She writes that women need three things from the financial-services industry: “low and transparent fees, clear explanations of products and advice and a lack of sales pressure.” On average, women earn less than men and outlive us. They need financial education but they’re not getting it.

Olen cites “experts” who opine that their finances make women excellent candidates to work with advisors. Prudential Insurance vice-president Joan Cleveland is one.

“Given the complexity of the financial products that are available to women to help them achieve their retirement goals,” Cleveland says, “they really need to be encouraged to seek out that financial advice from a professional….This need for trusted financial planners with women has never been greater….”

Olen challenges this as somewhat misleading – citing women’s lack of knowledge about certain products but ignoring men’s lack of awareness of similar products. I agree, while also agreeing with Cleveland’s assertion that women need financial advice (as do men).

Women’s (and men’s) understanding of personal finance must change and I credit Olen for slamming my industry for this failure. While I disagree with some of its underlying assumptions, Pound Foolish provides some thought-provoking insights into important topics.


  1. Sandra Flagler

    The “Latte Factor” is a very real issue for everyday people. I’m living on $1300 a month as a retired senior. After paying all my bills for September I will have $95 left over for everything else. $95.00 divided by the 20 days left in September means I have $4 a day to spend between now and the end of the month. I’m challenging myself NOT to spend that $4 a day on anything – no takeout coffee, no extra food (I’ll eat what is left in the fridge). At the end of 20 days, if I am successful I’ll put that $95 in my savings account for emergencies. Some will say I am depriving myself. No I’m not. I enjoy my daily coffee at home, my afternoon tea at home, swim every day (the community centre fees are small) and don’t need a restaurant meal (full of fat and salt) when I can cook at home and enjoy my TV programs. And, by the way, I “paid myself first” on the first day of September by putting $100 into a savings account and then paying the bills. I’m not a fanatic — I love spending money on clothes, cosmetics, shoes, jewellery and takeout food. But I’ve decided I will live on a tight budget in order to stay in my home, have a car and enjoy having two little dogs in my life. My days are full of personal satisfaction, no stress and a genuine feeling of being in charge of life. So for me, the “Latte Factor” is very real.

  2. Rob

    It’s really the structural spending that is the big issue. I remember reading a comment somewhere about a mom who followed the “tradtional” school path. Went to Uni, met husband, got married while both in school, husband does advanced degree, then a house in the burbs, 2 SUVs, long commute to work kids and suddenly she wants to be home with the kids!

  3. Claude Mayrand

    If the latte is such a critical, important goal in one’s daily life, maybe the latte could become an income goal rather than a savings goal.

    As a retiree, I tend to prefer the freedom – not exhilaration – of having money to spend rather than having money to save.

    In the article, a couple could spend $3,000 a year on lattes.

    So what financial product and how much capital could produce $3,000 in new cash? No, not overtime; a financial product.

    Use the “screener” tool in

  4. Kevin M

    So, you left us hanging by not giving us the recipe for… “homemade, icy, Frappachino-style vanilla beverage.”

    Please do tell!

  5. Erwin

    I guess that the Latte factor may or may not apply to everyone. Every person is unique in their own right, in the specific stage of life, the condition or present situation or in the attitude of how they view these things and how they choose to decide about the advice.
    As long as the person feels happy, content and not deprived, however they choose to go forward is their own privilege. They should not be judged as if they are out of integrity… based on whose standards anyway? Does that make sense? How about you? How critical is this for you?

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