Is the Latte Effect Really The Problem?

Shopping malls and retail stores are always packed, and there is a new restaurant on every corner. Everyone seems to be wearing designer shoes, jackets and jeans and sipping $4 lattes. Credit card commercials are constantly promoting splurging and, U.S. consumers have been more than happy comply.

So what's the problem? Why do so many middle class Americans with so much stuff say they feel so squeezed? If they are consumed by debt, isn’t it their own fault? I have always thought that many times we are responsible for the financial situations that we find ourselves in. After doing some reading on the topic I now wonder if our personal needs and consumption choices are really the problem.

Bankruptcy law expert and Harvard University Professor Elizabeth Warren spent a lot of time crunching the consumer spending numbers for her popular books, "The Fragile Middle Class” and “The Two-Income Trap.” In both, she makes this point: Despite all those $200 sneakers you hear about and the long lines at Starbucks, consumers are actually spending less of their income — much less — on discretionary items like clothing, entertainment and food than their parents did. In fact, after taking care of essentials like housing and health care, today’s middle class has about half as much spending money as their parents did in the early 1970s, Warren says.

The basics, our life essentials, now take up close to three-fourths of every family's spending power (it was about 50 percent in 1973), leaving much less left over at the end of the month.
Even though household incomes have risen about 75 percent since 1970, most of that they say, is the result of a second earner, generally a woman, joining the work force. In many cases that added income has been swallowed by rising fixed expenses, such as child care and housing costs, because many people try and buy more house than they can actually afford. The average family now pays at least twice as much for housing compared to what our parents paid in the 1970s.

Four in 10 Americans don't have even one month's worth of savings for use in case of an emergency, according to a survey by HSBC Bank published in 2006. And even with two incomes built into the family budget, the odds of a household getting hit by a layoff have doubled in the last generation. The combination of high housing debt, rising health care costs, lack of savings and greater exposure to unemployment has left many families in a dangerous financial position.

I see the biggest problem being that the largest portion of our budgets are spent on fixed costs like housing, has risen much faster than wages and inflation. That means mortgages, more than lattes, are the source of many of our financial problems.

I now think that the "latte factor" is only being used as a way to distract people from the real changes in the economy.

Got too much stuff?

Are you a pack rat? Seems a lot of us are. In fact, so many are that these self-storage facilities have become quite an industry. I thought those storage places were for people who were in transition - you know, moving to a new house but living with the in-laws for a couple months between closings. We've all done it.

Turns out, as an article I read recently explains, people just have too much stuff. Temporary storage is the second top reason for using self-storage. The first is "no room for items at residence". Wow. The article even has a list of what's in this guy's storage unit. He has 8 extension ladders. 8?? Okay, this guy is a retired roofer so that's why he needed 8. But now he's retired, why is he keeping them all? Besides, he's probably forgotten most of the stuff he has in there, anyway, so why keep it?

This self storage phenomenon is amazing considering we're living in the days of McMansions. We still don't have enough room for all our stuff, even with houses that are bigger than ever and getting bigger every year.

That's why I love my little house. It's about the size of the house I grew up in. Built in 1969, the closets are SMALL. But that's good because it forces me to think long and hard about each thing I buy. Is it closet-worthy? And, it also forces me to clean out every so often. The lack of clutter and the purging of stuff is quite therapeutic. My soul needs it now and then!

I save money because there's less space to air condition and heat. Less electricity to power and fewer rooms to fill with furniture. It's easier to clean and takes less time to clean, too. I can even clean it myself (although I hate to clean).

Sure, when I see those beautiful McMansions, sometimes I get a little green with envy. But it only lasts until I get back to my little house. It's just the right size for my family of 3. It makes us closer. Yes, I mean that physically and emotionally closer too. We can't run away from each other. We have to learn to co-exist together.

In fact, there are builders now who create tiny houses. Check out Tumbleweed Tiny House Company. Jay Shafer, the builder, lives in a house of 100 square feet. I love this guy! Here's what he says:

"My name is Jay Shafer and since 1997 I have been living in a house smaller than some people's bathrooms. I call the first of my little hand built houses Tumbleweed. My decision to inhabit just 100 square feet arose from some concerns I had about the impact a larger house would have on the environment, and because I do not want to maintain a lot of unused or unusable space. My houses have met all of my domestic needs without demanding much in return. The simple, slower lifestyle my homes have afforded is a luxury for which I am continually grateful."

I love that his concerns were about the environment. And check it out - he says a smaller house provides a simpler, slower lifestyle. Who doesn't want that? Yippee! Thank you, Jay Shafer.

Check out the inside of one of his houses:


Hard to imagine, but it sure is food for thought!