Simple advice about saving has spawned a toxic debate.
Left: Photo of David Bach by Dominik Bindl/Getty. Right: Photo illustration by Hunter French
David Bach has a story he tells over and over again about his Grandma Rose, who figured that being poor sucked and decided to become rich. In his telling, when Rose was a department store worker, she started putting 50 cents into a coffee can each week, then deposited those hard-earned savings into a brokerage account at the end of the year. After amassing enough wealth to escape the paycheck-to-paycheck grind, she passed her wisdom and thriftiness to Bach, who’s now a finance executive and money management guru. The 46-year-old has trotted out some version of this rags-to-riches story on shows ranging from Regis and Kathy Lee to the Breakfast Club. “That’s what changed the entire destiny of my family,” he said in a recent interview with the motivational YouTuber and podcaster Lewis Howes.
It’s the American Dream filtered through a set of over-rehearsed soundbites: Virtuous thrift leading to wealth as surely as planting apple seeds gets you apples. Bach’s uneducated but ultimately financially successful grandma inspired him to write his first book, 1999’s Smart Women Finish Rich. The idea is that people should delineate between “wants” rather than “needs”— a distinction he later distilled into the term “latte factor,” which is also the title of his latest bestseller. This metaphor, used as shorthand for any sort of daily, habitual purchase that isn’t life or death, set the self-help world on fire, and guaranteed that Bach will finish somewhere above rich. Smart Women has sold a million copies, according to Bach’s website. By 2004, he was regularly appearing on Oprah, and an extremely annoying, never-ending debate about the value of this advice was born.
On the surface, the debate is about whether saving in small increments is actually helpful or practical. Factions of finance gurus have spent decades arguing about whether it’s more effective to be frugal day by day or to focus on big-ticket things like saving $150,000 on a house purchase or negotiating a major raise. But since Bach first offered up this advice, the rhetoric has gotten harsher—spending on “wants” is now seen by many as a moral failing, while others insist that in a time of rising inequality, individual choices barely matter. The argument isn’t about coffee; It’s about whether we are in control of our own lives. Bach came to this advice with a spirit of empowerment, but it’s been weaponized as a way to blame people for their own circumstances.
Many experts find the advice simply unrealistic. Ramit Sethi is a popular financial guru who has largely defined his career in opposition to Bach. He argues that people should focus on making more money at their jobs rather than micromanaging their expenses. “People do not want to cut back on their lattes,” he said. “On the one hand you have this puritanical man telling you to go live in a cave. Then you go on Instagram and see your friends in Bora Bora. Guess what wins?”
Elise Gould, a senior researcher at the Economic Policy Institute, a left-leaning think tank, said that the most recent government shutdown—during which many government workers faced personal financial crises—illuminated that even people with stable, middle-class incomes are living paycheck to paycheck. In her view, it’s not that people don’t want to reduce expenses, it’s that many literally can’t. “In a world where lots of people can’t find $400 for some unexpected expense, like fixing their car, I think a lot fewer people are spending money on lattes to begin with,” she said. “It’s like, who are we even talking to?”
Bach’s advice has the advantage of seeming true, or maybe we just wish we had the power to become rich through sheer willpower. The idea has also been roundly mocked for nearly as long as Bach has been famous. (He did not respond to requests for an interview for this story.)
In 2005, Tom Gilchrist, then a newspaper reporter at the Bay City Times in Michigan, penned a column titled, “Coffee For a Nest Egg? Retire That Idea.” Now, after an exceptionally tough decade and a half for the news business, Gilcrhist works for a different paper in a job that doesn’t pay him enough to make ends meet. The 59-year-old wonders what his life would be like if he’d actually put money aside and into a brokerage account like some of his former coworkers did.
“The notion of skipping that one morning cup of coffee each weekday en route to work and placing $1.37 daily into a container of my 2009 Buick—which I now use as an Uber driver— is intriguing,” he said over email. “Heck, today I’ll settle for money in a savings account.”
As Gilchrist’s example suggests, sometimes forces we can’t control shape our lives more than our individual choices. Today’s proponents of Bachian thinking don’t seem to have much sympathy for those excuses, however. There was the Australian property developer who famously sneered at millennials for buying avocado toast and coffee instead of saving for a house. Former Utah Congressman Jason Chaffetz suggested that people can’t afford health insurance because they own iPhones. (Both the Aussie and Chaffetz were roundly mocked.) Shark Tank investor Kevin O’Leary once said in an interview that he would “never” spend $2.50 on a cup of coffee. Financial advisor Suze Orman affected similar disdain when she said in a CNBC video this year that if people didn’t purchase coffee for 40 years and instead put $100 a month into a Roth IRA, they would have a million dollars upon retirement. “It is not a need, it is a want,” declared the best-selling author. “You are really just wasting money. I wouldn’t buy a cup of coffee anywhere, ever, because I would not insult myself by wasting money that way. And I can afford it, and chances are you can’t.”
What was once a story about a virtuous grandmother has shifted—it’s now another tale of millennial failings. But young people might reasonably ask, OK, I’ll put spare change in a coffee can, whatever that is. What am I supposed to be saving for? Unlike their parents or Bach’s Grandma Rose, millennials and members of Gen-Z aren’t likely to buy property—homeownership rates for people between the ages of 24 and 32 dropped by about 9 percent between 2005 and 2014—and rents have risen to the point that taking out loans to pay your landlord is something of an emerging trend. And after reading articles about how the 1 percent has so much money they don’t know what to do with it, people living paycheck to paycheck may not especially appreciate being shamed by wealthy talking heads for the small purchases they make in order to enjoy—or sometimes just endure—life.
“I think there’s a much better understanding of inequality in this country than there used to be,” said Gould, the economist. “The gaps in wealth and income, and wages between haves and have-nots. People realize it’s not just about a latte—it’s about a pie, and how it’s being divvied up.”
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Simple advice about saving has spawned a toxic debate.
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