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Who would’ve known that all this time we have been pouring caffeine-laced devil’s brew down our throats every morning?! If you’re not aware that the latte factor is the reason that we have poor people in the world, and are most likely the major cause of the growing income gap, increased student debt, and foreclosures, then you haven’t been reading many personal finance blogs lately. Seriously though people, what did poor lattes ever do to you? Why choose to single out that frivolous expense as opposed to our other frivolous expenses? I mean, how many people consume sodas, cigarettes, French fries, booze etc. on a daily basis, yet somehow lattes get to become the whipping boy? They are so hated they even get their own trending title of the “The Latte Factor” to make it all dark and mysterious? Now I must admit, I too have succumbed to the “my site needs a coffee article before it is complete” syndrome myself. It is a useful figure for showing how compounded savings can work. The Latte Factor Prophet HimselfIn case you actually have a social life and don’t read many personal finance blogs, the latte factor is an idea generally accredited to David Bach. It shows just how effective daily saving and investment can be. By taking the cost of an over-priced cup of coffee (seriously, why do these scenarios always use like the Starbucks mocha-frappa-double-choc-frothalicious that costs more than a happy meal) and showing how much money you can garner when the black magic of compound investment returns is applied to it, every personal finance blogger in the world believes they have found the path to true happiness. A sort of financial nirvana if you will. The articles usually forget to deduct what the coffee, cream, sugar etc. would have cost at home, and they usually assume extremely high investment returns, but yes, let’s all agree that cutting back on the coffee could help us out to the tune of a couple hundred grand when we are 103. Sweet. A Venial Sin At Worst The bottom line is that this is a tough strategy to enact because it advocates an extremely frugal position. People like a small creature comfort, and if a little coffee (by the way, in Canada we have this magic place called Tim Hortons – it’s kind of a cultural icon – and I get a great double-double there for like $1.50, you should try it sometime) prevents someone from going crazy in this insane world they live in, then hey, let ‘em have it. The key is to limit the luxuries we spend money on to a level that we are comfortable with and have made a conscious choice to spend beforehand. If you figure that you can spend $100 on “token luxuries” in a given two-week stretch, and you don’t smoke, rarely drink, and hate fast food, then knock yourself out and enjoy the caffeinated heaven that is calling your name. Everyone has different priorities, so to just casually send someone to frugal purgatory because they like a good cup of java makes little sense to me. As long as people are aware of the long-term sacrifice of the occasional cup of coffee (and how could they not be with the staggering amount of anti-coffee propaganda pouring out of keyboards everywhere), then who are we to tell them no? As financially-enlightened individuals we often give people a free ride, or a mild rebuke for driving luxury vehicles, investing in mutual funds that have ridiculous MERs, or spending money on gifts that will likely be underappreciated anyway. Yet we feel the need to fill the blogosphere with more coffee-bashing articles than there are hipsters in a downtown Starbucks. Come on guys and gals… we can be better, we must be better. Baristas of the world rejoice, hold your coffee up high and say, “I will staff write one post about the evil bean and it will pay for a week’s worth of my sinful ways.” What are your thoughts on the latte factor? Photo credit: @Doug88888 By Sustainable PF Earlier this week Teacherman wrote about whether or not public service compensation is the next “bubble” to burst. In the article, which I thought was excellent, TM, a civil servant himself, argues that public service compensation is “racing ahead” and the great gains public servant in Canada are achieving need to be curbed now, not later. TM makes some valid points, however, there are a few points where we do not see eye to eye. Full disclosure: Mrs. SPF and I are public servants in the province of Ontario. Our livelihood, like TM, is intrinsically dependent on the public service compensation our employer provides. Additionally, elements of our compensation, like health benefits and a defined benefits pension plan are key parts of our future personal financial plan. Like TM, I will endeavour to not impart personal bias when discussing the subject of public service compensation. Teacherman sites two studies in his article (CUPE and Treasury Board). These (typical) studies on this topic leverage statistics which can be selectively adopted based on the driving interests of the organization that produced the analysis while ignoring extremely important comparison considerations. This goes for both sides of the argument. When it comes to statistics I agree with Mark Twain (who attributed 19th century British Prime Minister Benjamin Disraeli): “There are three kinds of lies: lies, damned lies and statistics.”. Continue reading Public Service Compensation – Really So Bad? By Teacherman 
Since talking about “bubbles” is in vogue these days (ie oil bubble, real estate bubble, post-secondary bubble, etc.) I figured I’d tackle the somewhat thorny issue that appears to be creeping up more and more in this new era of austerity that we have entered in the Western World. The bubble I’m talking about of course is the public service compensation bubble. I want to point out that the views I express are not supported or indicative of those held by the owners of this blog in any way! I should state up front that I am a civil servant (teacher) and I definitely am benefitting from the current labour environment as a public employee. Taxpayers = Golden Goose In a recent survey put out in British Columbia, nearly 75% of the 804 people surveyed agreed that legislation that would limit the compensation of provincial and municipal employees to that of the private sector was a good thing. From my anecdotal experience, I would say that this view is held by many Canadians and that it is only going to get worse if many of the trends over the past couple of decades continue. The Globe and Mail also touched on the subject, and reported that in these economic down times, “Public-sector hikes have outstripped increases in the private sector for the past four years, prompting howls of outrage from some who see them as examples of government excess.” The Seesaw Is Stuck On One Side The balance that has existed in the past between the compensation levels of private employees, and those of public-sector employees has clearly come undone in the minds of many Canadians. It used to be commonly known that while the public sector offered substantially better benefit packages, including items such as better pensions, more sick time, better holiday considerations etc., the private sector held advantages such as better pay, more opportunity for advancement, and other financial considerations. In doing a little keyboard research for this article I found varying positions supported by slanted research in a variety of ways. The one consistent finding in all of these reports however, was that public workers are simply doing better by pretty much any measure compared to their private counterparts. The real debate is by what degree this is the case and what effect could this have on the labour market in Canada. Study Study On The Wall… Who’s The Most Accurate of Them All? At opposite ends of the spectrum were a recent study done by the CUPE and a 2007 study done by Treasury Board of Canada (to me, the arguments are even more relevant now given the gains public sector employees have made relative to the private sphere). This isn’t surprising when you consider it is in the CUPE’s best interests to play down any differences in compensation levels that could be used to leverage their compensation packages down, and the Treasury Board represents the businesses that want to pay lower compensation levels and are sick of competing with the government they pay taxes to. Continue reading Public Service Compensation – The Next Bubble? By Teacherman
 Parliament Hill © by tsaiproject Nothing like mixing a little politics with your personal finance to get the old blood flowing eh? The Conservatives’ 2012 Canadian Federal budget, and their overall vision for Canada came out on Wednesday, and I believe that there is a lot more to like than there is to dislike. Unsurprisingly, the Tories are aiming to slay our national deficit just in time for an election in 2015. I think this is a worthy goal, and the fact that we are on pace to accomplish it while maintaining the lowest debt-to-GDP ratio in the G8 bodes very well for us. On a macro level (one that often gets lost in this 24-7 news NOW era) I believe this budget keeps Canada competitive on a global scale, while trimming expenses as gently as possible. No doubt several people will disagree with that assessment (new NDP leader Thomas Mulclair foremost amongst them), but I believe this document is practical and precedent-setting in positive ways, even if I don’t agree with every aspect of its execution. Here are some of the highlights and how they will likely affect the personal financial situations of Canadians: 1) OAS and GIS push back to 67 gets phased in after the blessed boomers get in under the bar. If I didn’t generate enough controversy asking whether the Old Age Supplement (OAS) is a right, this one puts me over the top. This policy is in line with developed nations everywhere. It makes perfect sense in an age of increased life expectancies, and it puts the responsibility of saving for retirement back on the individual. Obviously this will affect the planning of many middle-aged people, but with plenty of notice, and a solid Canadian Pension Plan (CPP) foundation that can still be drawn on without change, I expect most people will notice it very little within a few years. Personally, I would like to see CPP pushed back as well, with the OAS clawback more heavily enforced at lower income levels (people making 100K a year don’t need more government money), and a more assertive Government Income Supplement (GIS) to balance everything out, but that’s just me. Continue reading A Reaction to the 2012 Canadian Federal Budget | |
