Personal finance books often advocate for cutting small spending that, in the long term, contribute significantly to savings. While the concept is correct, it has to be balanced with smaller details that spark joy. Fintech solutions help digitize this balance through different solutions that allow individuals to contribute to their health and wealth.
As an experience-driven generation, millennials often find themselves facing a dilemma trying to balance their aspirations to explore new food, places, and interactions while also maintaining healthy financials. As a generation who encountered the financial crises and now COVID19, together with their vast exposure to news and financial data, millennials tend to be more financially sensitive than their parents. However, they are also the biggest supporters of little luxuries from their daily coffee cups, avocados on toast, acai bowls, and frequent travels. Such behavior has been discussed from different angles, including financial planning from one end and science of joy and happiness on another end. Rising fintechs also considered such insights within their products that are essentially designed for millennials’ use.
David Bach addressed such little luxuries in his book The Latte Factor (2019) from a financial planning perspective. ‘The Latte Factor’ here refers to the laundry list of items that are deemed unnecessary, don’t add value to us, yet over time make a significant proportion of spend. Hence impacting, over the long run, savings and ultimately investment capital. The key message of Bach is to encourage consumers to ponder the details of their daily activities and assess their financial impact. By cutting them off certain habits or replacing them with a cost-effective alternative, they’ll be able to increase savings per day. Therefore, it doesn’t necessarily entail eliminating daily doses of caffeine but rather replacing them with a coffee machine, for instance, and making your own at home instead of buying one. This includes all payments that don’t add much joy, such as late fees you pay your bank, the gym membership you never use, or your phone package which you don’t fully consume. Therefore, over a year, it is likely to increase your savings by 20-30% that can be ultimately saved for retirement or better to help you achieve your dreams and aspirations.
However, given the millennial’s experiential nature, this concept in practice should be balanced with joy sparked by ‘little things’ or the ‘little luxuries’. The science of joy often points out the importance of such small details on our overall happiness. This could be your morning virtual stretch session or even your cup of coffee. Laura Vanderkam, the author of several time-management and productivity books, said in an interview with The Atlantic, “Little luxuries actually have a real effect on people’s happiness … In many cases, you’re probably better off getting a cheap dining room table and using that extra money to get coffee or go out to lunch with friends” [1]. Therefore, it is key to consider which of those little luxuries you are cutting off. Some can potentially translate well into financial wealth, yet this shouldn’t lure us into dismissing those that help us build with our mental wealth. Several studies have confirmed this ensuring that self-indulgence is as important as self-control[2]. Thus, some form of balance must be struck between fulfilling self-pleasure and control, as overdoing each has its detrimental effects.
Given the difficulty of striking such a balance, several fintechs companies globally have grasped the importance of this balance. Hence, they came up with new ways that help millennials build up their wealth in ways that don’t necessarily require them to eliminate their caffeine shots. For instance, fintechs like Chime’s saving account and Qoin enable users to round up savings post a purchase[3]. Therefore, whenever you spend 18 AED on your coffee cup, 2AED will be contributed to your savings account. While other apps such as Upstreet rewards consumers with shares instead of loyalty points. Hence you become a shareholder of your favorite brand after purchasing that yoga pant you wanted or that fancy limited-edition sneaker. While many others allow you to better track your spending, revealing insights and spend patterns that enable you to figure out your ‘latte factor’. This often includes recurring purchases that don’t spark joy, such as app purchases or software subscriptions that you don’t actually utilize well.
To conclude, it is key to wisely consider our habits and spending behavior impact on both our financial wealth and mental health. A latte is a line of survival to one but a luxury that can be easily given up to another. While it is important to find your latter factor, it is also essential to indulge and understand what makes a day great for you. Financial tech can come to the rescue by bringing in new solutions to help millennials balance, helping them digitize the right habits that enable them to do so, and as David Bach points out, “The solution to your money problems isn’t more money; its new habits” [4]. While I hope this article encourages us all to think of our financial spend behavior, I also wish to see more exciting fintech solutions in our MENA markets that truly enable consumers to achieve their financial aspirations.
Resources:
[1] https://www.truist.com/content/truist-bank/us/en/money-mindset/principles/mind-money-connection/convenience-buys-spark-joy.html
[2] https://www.forbes.com/sites/alisonescalante/2020/09/15/you-need-both-self-control-and-self-indulgence-to-be-happy/?sh=75591c86629c
[3] https://www.forbes.com/advisor/personal-finance/the-5-best-round-up-apps-for-saving-money/
[4] The Latte Factor Book (2019). P.85
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