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Let’s settle it: Does drinking coffee really make you broke?

BIG DISCLAIMER: Sponsored content with Nespresso Singapore.

If we are to believe the popular literature out there, coffee is one of the leading causes of financial hardship amongst millennials.

This is puzzling to say the least. After all, there are many ways to drink coffee affordably, including instant coffee and kopitiam coffee.

Clearly, there is only one type of coffee responsible for making millennials broke – those bought from cafes and coffeehouses, which cost about 4x – 5x their cheaper counterparts.

So why would someone pay more than $6-8 for a cup of coffee?

Well, in the process of writing this article, we discovered that the answer is more complex than we initially thought.

Understanding different reasons we drink coffee

On surface level, coffee might just be liquid in the cup. However, there are actually different dimensions to why anyone might consume coffee.

Here are just four for your consideration:

  • Reason 1: Functionality

Sometimes, people just need caffeine in their bloodstream to get through the day. They don’t care too much about taste, as long as it doesn’t taste too bad – which can be managed through dilution via milk and sugar.

Type of coffee: Affordable instant coffee and local coffee can fulfil this easily.

  • Reason 2: Taste

Taste is incredibly subjective, so it’s entirely possible that someone prefers a $1.5 coffee to $7 one. More often than not though, expensive coffee tends to use higher quality beans.

Spending money on specialty coffee is a legitimate hobby in itself. The coffee aficionados at Nespresso also shared with us that people who are more serious about coffee look out for the intensity of their roasts and flavour notes in their blends, as well as the different roasting techniques used.

These flavours might not be too evident with a $1.50 coffee, but you’ll probably be able to taste them with more premium capsule coffee (including Nespresso, our sponsor) or at a cafe.

  • Reason 3: Social lubricant

Coffee is a great social lubricant, compared to say, water. You won’t ask your date out for ‘water’, but asking people out for ‘coffee’ is acceptable. I have paid for expensive coffee many times, simply to not be a killjoy in social gatherings.

  • Reason 4: To signal social status or identity

To be seen drinking the right type of coffee is cool. And you might not always drink it to be seen by others; sometimes you drink to feel better about yourself.

There’s a reason why you will create an IG story of yourself at a specialty cafe with latte art, or why luxury hotels put having a Nespresso machine as a ‘room feature’.

Before you jump to any conclusions, this should not be interpreted as a value judgement, but instead an acknowledgment that there’s some intangible benefits of drinking pricier coffee.

The reason(s) you consume coffee will determine how much you actually spend on coffee.

Functionality won’t require you to spend too much money. Instant coffee or kopitiam coffee will do.

If you’re going for taste, you can save heaps of money by making the coffee yourself (our sponsor for this article, Nespresso, can tell you more).

If you are using coffee for its function as social lubricant, or to signal social status or identity, then chances are it’s going to be pricier.

When you drink cafe coffee, it’s often a result of all the reasons mentioned above. Even the expensive ones.

Why is cafe coffee so expensive? 

We generally don’t drink expensive $7 coffee. Neither can we endorse it.

However, we’ve developed an appreciation of why it’s expensive.

You see, ‘Expensive’ and ‘Overpriced’ are two different things. The former means that the coffee costs a lot. The latter means that the coffee is not worth the price.

In a 2019 article, it’s mentioned that the cost of producing a latte costs around $0.80 for a cafe.

When you pay $7 for your coffee at a fancy cafe, what a large bulk of it goes to paying for is the multiple costs of running a fancy cafe in Singapore – rent, labour, equipment, electricity bills etc.

All this goes into creating the cafe experience which you pay for. Which, includes the following:

  • Ambience: Making sure the cafe is a comfortable and desirable place to be seen in.
  • Convenience: You don’t need to make your own coffee, saving you time. You also don’t need to constantly store milk in the fridge.
  • Service and skill: Training Baristas costs money, and so does paying them. Make no mistake, people do not come out of the womb knowing how to create latte art.

Needless to say, if the cafe experience is not important to you, you should not pay for it. You can always look for alternatives and recreate the cafe experience at home with the right coffee apparatus.

Is buying coffee a bad financial decision?

In the Singaporean context, paying $7 for a cold brew every day will set you back $2,555 a year.

Is this a large number?

Well, it depends who you ask.

If you make $100,000 a year, there’s certainly no issue with you spending $7 per day on coffee – provided you manage to save a decent proportion of your salary.

However, if you’re a fresh grad earning <$3,000 who’s trying to build up emergency funds in the midst of a pandemic, then yes. You might wanna skip the pricey coffee, and opt for something more functional.

Based on Singapore’s median gross income of $4,534 a month, $2,555 is around 4.7% of someone’s annual income ($54,408).

That makes it hard to draw the line. Losing 4.7% of your annual income won’t exactly ruin your financial health. But it’s not a small enough amount to ignore either.

In my own opinion, there are more impactful things for our page (and other personal finance pages) to worry about than the cost of your coffee.

These include:

Wage stagnation. Finding ways to increase your salary through improving both your hard and soft skills.

Lifestyle inflation. Having the right habits and resisting peer pressure so your salary can keep up with your spending. Think cars, condos and credit card debt. More on this later.

Failing to start, and stay invested. Realising that we all need to invest to keep up with the modern-day economy. Eventually, your labour will run out – you will need capital to help you stay in the wealth game.

If coffee doesn’t make you broke, why does it get so much hate?

Graham Stephen, a multimillionaire YouTuber, regularly insists on drinking only homemade coffee. Best-selling author Suze Orman shares similar thoughts, saying that you’ll pee a million bucks if you’re spending money on an expensive latte.

Here’s our suspicion: coffee gets a bad rep because it’s an easy target for the broader lifestyle of overspending and lifestyle inflation.

A cup of coffee is fleeting, with a maximum lifespan of two days. Its intangible qualities are hard to measure. On top of that, it’s also hard to justify it as a ‘need’ as compared to say, a home or car.

It’s almost begging to be made a target.

But if you look more carefully, you’d see that expensive coffees are often accompanied by expensive ways of living.

Staycations, cars, desserts, gym memberships, the latest tech gadgets and fashion. All these add up and will devour your paycheck.

Make no mistake: Drinking your coffee might cost just $7, but maintaining the persona of someone who can comfortably afford $7 coffees is far more expensive.

TL;DR: There is nothing particularly wrong with coffee, the real issue is when people get hooked to lifestyles they can’t afford.

So, choose your addictions wisely.

 

Stay woke, salaryman.

A Message from our Sponsor, Nespresso

If you’re looking for something more than just a yuan yang bing, but don’t want to pay $7 for a cup of coffee, check out the Nespresso Machine Subscription plan where you can own a machine for just $1.

With a monthly plan ranging from $35 – $85 depending on your coffee consumption, you get flexible monthly credits that can be used to redeem coffee capsules and accessories online and in their boutiques at your convenience. They’ve also launched the new Vertuo Next as one of the latest machine subscription plans.

The new Nespresso Vertuo elevates your home coffee experience with its full range of coffee styles – from a double Espresso to a large Mug of coffee, and even a pour-over. The Vertuo Centrifusion™ Technology brews perfect full-bodied coffees with a smooth, silky crema.

The plans start at $65/month where you can redeem around 60 – 70 capsules a month, which adds up to less than $1/cup for café-style coffee. Everything will be delivered straight to your doorstep, so you can enjoy high-quality coffee blends in the comfort of your home without any fuss.

Nespresso Inissia Subscription Plan Kopi-Tiam Coffee Nespresso Vertuo Next Subscription Plan Cafe Coffee
Monthly Cost $35 $45 $65 $210
Annual Cost $420 $547.5 $780 $2,555

Check out the Nespresso Vertuo Next Machine subscription plan here.

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4 replies to “Let’s settle it: Does drinking coffee really make you broke?

  1. There is a significant placebo effect related to pricing – more expensive medicine is more effective, more expensive food/coffee tastes better.

    Too bad Nespresso is cheap – probably doesn’t taste that great. Prefer kopi o kosong myself (not as much as $7 coffee, but at least it is it’s own creature and not trying to be smth better than what it is.

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