What’s in our coffee?

The average college graduate in 2016 has $37,000 in debt and the total student loan outstanding reached $1.56 trillion in 2018.

It would seem that the millennial generation is spending more on coffee than they are saving for retirement.

Only 16% of millennials would consider eating home-cooked meals over going out for dinner.

Upon graduation, do you feel empowered to live your dreams? Or does it feel like you are deep in debt? I recalled watching a video on YouTube, Denzel Washington was giving a speech to motivate and inspire graduates. Watching the clip made me feel awesome, ready to put things in perspective, having a pathway towards uplifting ourselves, and then helping out someone else in need.

Everyone wants to do good, until circumstance slaps us in the face like a brick wall. Here’s the clip anyway, hope you will feel inspired too!

So far, nothing has been said in this post about our coffee. Well, we love coffee. I drink too much for my own good on a daily basis and I still love my coffee.

Americans are running on a caffeine high, drinking on average 1.6 cups of coffee per day. This love for coffee is so great that 41% of millennials responded in a survey by micro-investing app ACORN, that they were spending more on coffee than they were saving for their retirement. This implies there is a growing lifestyle inflation and unwillingness to forego short term pleasure for long term goals and aspirations, such as retirement. 

In this modern age, we have been blessed to enjoy and experience luxuries that are made accessible through technology. We can now connect with friends across countries through an internet connection, meet friends online for games, watch movies in our house without going out to rent a DVD. All these however have come at a cost. We purchase too much unnecessarily.

Beginning with an end in mind helps transform each purchase decision beginning from the simplest decision whether or not to buy a cup of coffee on the go for $2 at Starbucks (NASDAQ:SBUX). With some idea of what foregoing a cup of coffee would mean ($90 value upon retirement), this helps every consumer place things in perspective.

Value of $1 saved and reinvested at 10%:

Saving a dollar for a cup of coffee potentially yields $45 on retiring

It is also shocking to hear that 37% of millennials surveyed by LendEDU did not have any savings for retirement. Of those who did spend on coffee, the monthly average expense was $38 and $163 was the average expenditure on dining out. Assuming half of the spending was saved and put towards investing for retirement, the retirement pot would be worth $197,393 in 30 years time. The value of compounding ensures that time is a relative advantage to those who start saving young. Hence, the importance of doing so as soon as possible.

The insight from the LendEDU survey suggests that there is a ray of light. While 37% of those surveyed do not save for retirement, the average millennial saves $480 per month for retirement. This seems to suggest that those who are aware or educated on the topic of financial planning, are consciously thinking ahead.

nper 30
pmt $5,760 ($480 per month)
Yield 10%
PV 0
FV $947,486

Saving $5,760 a year over the next 30 years grows potentially into a decent retirement fund of $947,486. A 4% withdrawal rate would allow a retirement income of $37,899 every year.

Year Over 65 Avg. Expenditure % change
2000 $26,533 0.00%
2010 $36,802 38.70%
2017 $49,542 86.72%

Source:  https://data.bls.gov/PDQWeb/cx 

The issue however is more needs to be done. Based on the table above, the average annual expenditure for a person over 65 years old was $49,542 in 2017. This has increased by 87% from $26,533 in 2000. It is therefore probably that many Americans would have to work longer in order to cover their living expenses.

I used the cost of our coffee drinking habit as an example of how we would one day have to be accountable for our lifestyle choices. In truth, there are many other ways we spend money, often chalking up credit card debts as we consume. Instead of planning for retirement, Americans are instead finding their debts growing. Consumer debts at the end of 2018 was reported to be $4 trillion based on a report released by the Fed up 4.5% from a year ago.

As at March 2019, the personal savings rate is at 6.5% of income, which makes retirement a pipe dream. If at all we would like to retire at 60, it is time to act. I suggest finding an alternative or a cheaper cup of coffee.

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