How many forever stamps should you buy?
With the price of first-class letter stamps set to rise by a penny on May 12, Americans are loading up on forever stamps, which cost 41 cents but can be used from now until the end of time…or at least the end of the U.S. post office. According to the Associated Press, Americans are so eager for a deal they are buying forever stamps at the rate of 30 million a day.
What’s behind the rush on forever stamps? The allure of a good deal. How good a deal is it? Odd Numbers think not much of one. Posting a chart measuring 30 years of actual stamp prices against a price-adjusted stamp based on a 15 cent stamp sold in 1978 (shown below), he says “it would be hard to make a good case for buying Forevers as they haven’t kept up with inflation.”
Since inflation has risen faster than the price of stamps over the past half century, it’s always a bargain to simply pay the current price. Despite their nominal price, stamps have actually been getting cheaper. Slate made a similar point last year, and noted that a forever stamp in 1952 when first-class stamps cost 3 cents would be a bargain today since its inflation-adjusted price would only be 23 cents.
If the Forever stamp had been introduced in 1978, you would’ve been better off spending the $0.15 on most anything else. At all points in the following 30-years the inflation-adjusted price of stamps was less than $0.15. There would have been no point in hedging against rising stamp prices.
The Simple Dollar, comparing the cost of 519 stamps to the Consumer Price Index (CPI) from 1980-2006, says there is a way to rationally justify buying a large batch of forever stamps. Stamps are the “biggest bargain just before the rates went up.”
In other words, when the “forever” stamp goes into effect, buying a bunch of stamps just before a rate increase is a very effective way to save money. You can easily outpace inflation with this “investment” and even outpace a lot of other investments, including money market accounts. Of course, over a longer period of time (a period of two stamp rate increases or more), the price increases begin to match inflation, and that’s not a good investment.
So who’s right? Odd Numbers. It’s hard to reconcile the two graphs shown above, but here is one attempt. It is not surprising that stamp prices and CPI follow each other fairly closely, since since stamp price hikes are capped by the CPI. But the CPI is thought by some economists to understate true inflation, which may explain why stamps can track it and still lag inflation. You may be able to save a couple bucks by buying 41-cent forever stamps if you know you need to send a large number of letters (say a few hundred) over the next few months. But the forever stamp is a marketing scheme, not an investment. Don’t let your inner homo sapien mix up the two.