Written By Anna Gegovic
Whether it is a long study session in a local cafe, a quick pick-me-up before class, a meet-up with friends, or even just a coffee chat with a new acquaintance—many college students’ days often include buying coffee. However, this habitual and sometimes careless spending can add up over time, even though it doesn’t seem like a lot at the moment. Within behavioral economics, Richard Thaler’s model of mental accounting can help explain this behavior in the purchasing habits of students.
Each day, individuals make choices on how and where they want to spend their money. Mental accounting explains how individuals mentally separate their money into different categories based on subjective criteria, such as the source or intended use (Thaler, 1999). Mental accounting is made up of three main components: how individuals perceive and evaluate financial outcomes, how they assign financial activities to specific mental categories, and how frequently and broadly they evaluate these financial accounts. An important aspect of mental accounting is how it violates the rule of fungibility in economics—which states that money is interchangeable, as every individual treats money differently depending on the mental account they assign it to. With these functions, mental accounting influences the choices that consumers make (Thaler, 1999).
When considering buying behavior, mental accounting plays a role in student spending habits for coffee. According to Thaler, “Many small, routine expenses are not booked. Examples would include lunch or coffee at the workplace cafeteria… Ignoring such items is equivalent to the organizational practice of assigning small expenditures to a ‘petty cash’ fund, not subject to the usual accounting scrutiny” (Thaler, 1999, p. 194). In other words, students often overlook their daily coffee purchases because they mentally classify them as minor, routine expenses rather than carefully tracking them as part of a budget. Instead of thinking of each purchase critically, they often use reasoning like having a long study session, needing to meet with a friend for coffee, or other school-related matters that foster reasoning for allocating money to the coffee fund.
College students consume coffee for a variety of reasons beyond just staying awake. In a study where coffee was identified as the primary source of caffeine, students reported consuming it to stay alert (79%), for taste enjoyment (68%), social interactions (39%), enhancing concentration (31%), boosting energy (27%), mood improvement (18%), and stress reduction (9%) (Mahoney et al., 2019). This indicates students often make irrational purchases on coffee that they otherwise would not spend, to meet mental or social needs. Furthermore, in a longitudinal study among young adults, repurchase behavior at coffee chains was found to be largely influenced by habit rather than conscious intention, and that satisfaction and perceived value had a positive influence on recurring visits (Kim et al., 2019). Thus, if students continuously use subjective reasoning to justify spending on coffee, the act can become more habitual and reinforce spending over time.
Coffee consumption within students will be different of course, as every individual has different preferences. Students who choose to indulge in purchasing coffee from shops, local or chain, face prices of anywhere from $3 to over $5 per coffee especially when opting for drinks with milk alternatives which tend to have additional costs. In Q1 of 2024 in the US, consumers on average paid $3.08 for a cup of regular coffee, $5.14 for cold brew, and $5.46 for lattes (Toast Inc., 2024). Sacrificing a few dollars on a coffee every few days may not be a big deal for some, but those who are mostly unaware of the amount they are overspending may be in for a surprise when taking a look at their account balance. The money spent on coffee also represents an opportunity cost for those students, as they could’ve allocated those funds towards other things, such as food or other necessities.
In the long run, frequent spending with little financial consideration can cause students to underestimate the impact of their spending on their budget due to the shortcuts taken when mental accounting.
References
CC0-Photographers. (2016). Free Images : person, coffee shop, light, restaurant, design 4288×2848. Pxhere.com. https://pxhere.com/en/photo/31429?utm_content=clipUser&utm_medium=referral&utm_source=pxhere
Kim, Byoungsoo ; Kim, Daekil. (2019). A Longitudinal Study of Habit and Its Antecedents in Coffee Chain Patronage. Social Behavior and Personality, 47(3), 1–11. https://doi.org/10.2224/sbp.7519
Mahoney, C. R., Giles, G. E., Marriott, B. P., Judelson, D. A., Glickman, E. L., Geiselman, P. J., & Lieberman, H. R. (2019). Intake of caffeine from all sources and reasons for use by college students. Clinical nutrition (Edinburgh, Scotland), 38(2), 668–675. https://doi.org/10.1016/j.clnu.2018.04.004
Thaler, R. H. (1999). Mental Accounting Matters. Journal of Behavioral Decision Making, 12(3), 183–206. https://doi.org/10.1002/(SICI)1099-0771(199909)12:3%3C183::AID-BDM318%3E3.0.CO;2-FToast Inc. (2024). Toasttab.com. https://pos.toasttab.com/news/most-popular-coffee-and-tea-drinks-toast-restaurant-trends-report?srsltid=AfmBOoomt16F7vkd2j97Qw-nTYwrJd9c5hAbAIwZDhXoLuELGMY2jVyP