Is Starbucks the Best Place to Keep Your Money?
Recently, I found $20 worth of Starbucks gift cards in my home office. Bought probably two years ago, they’d been set aside and forgotten. Whoops. But this got me thinking: Is Starbucks really the best place to keep your money?
The Starbucks "Stored Value" Phenomenon
Starbucks reported $1.64 billion in “stored value” liability in its annual report — that’s money loaded onto gift cards and the Starbucks app but not yet spent. Some of that money is from misplaced cards, but a large chunk is likely due to the auto-reload feature. You can attach a payment method, set a minimum balance, and never run out of coffee credit again. The company allows up to $500 to be stored on a single card, and up to $10,000 on a combination of cards.
Even if you keep only a $50 balance, is this the best use of your funds?
The Emotional Disconnect
There’s nothing inherently wrong with a daily coffee habit if you’ve budgeted for it, but automatically reloading a balance encourages overspending. Consumers tend to treat “stored value” differently than real money.
"It doesn’t have that emotional trigger of pulling out the cash and handing it over. You have to make the conscious decision that yes, this is a transaction that I want to go through with," says Ian Bloom, a certified financial planner in Raleigh, North Carolina.
The Latte Factor
The “latte factor” is a concept that suggests cutting back on small, daily expenses (like your coffee habit) can lead to significant savings over time. According to a survey from Acorns, the average American spends $1,100 per year on coffee, or about $92 a month. That’s more than some people invest annually.
If you invested that $92 every month starting at age 25, you’d have $286,000 by age 65, assuming an average annual return of 8%.
Opportunity Cost
The money spent on coffee is money that can’t be used for long-term financial goals, like beefing up your emergency fund, retirement plan, or saving for a down payment on a car or home. That same money could also be put into bonds, certificates of deposit, peer-to-peer lending, real estate crowdfunding, or a high-yield savings account.
Another issue with stored credit is that it’s money that can only be spent at Starbucks. When you buy a $4 coffee with a $5 bill, you get a dollar back. But when you buy a $4 coffee with stored credit, you’re left with a lower balance — money you can’t use elsewhere.
Turning the Concept on Its Head
While the auto-reload feature might not be ideal for everyone, you can turn the concept into a positive financial habit. R.J. Weiss, a certified financial planner from Geneva, Illinois, suggests canceling existing auto-reload agreements and instead, scheduling automatic withdrawals toward more important financial goals like retirement, homeownership, or an emergency fund.
"Take that concept of automatic withdrawal and apply it to an important goal," says Weiss.
Setting Limits
Michael Izbotsky, a certified financial planner in Los Angeles, notes that stored credit can be a great way to limit or budget your spending. By preloading a set dollar amount, you’re essentially giving yourself a monthly allowance.
"If you are on track with funding your home purchase goals, travel goals, retirement goals, and any other goals, then I say enjoy that daily cup of coffee," says Izbotsky.
Conclusion
While Starbucks may not be the best place to keep your money, especially when considering opportunity cost, it’s not all bad if you’re mindful of your spending habits. If you’re meeting your financial goals, indulging in a daily coffee isn’t a crime. Just be sure you’re not letting convenience lead to unconscious overspending.
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Description: A person holding a Starbucks coffee cup, symbolizing daily spending habits.
