U.S. First Class Postage Rate Hike: Investment Value of the Forever Stamp


I’ve been honing in on my “soft” skills for the past week, so the analyst in me is just rarin’ to go and crunch some numbers. Rather than channel this energy for any real useful purpose, however, I decided to take a look at the U.S. Postal Service’s little innovation called the Forever Stamp.

In brief:  After several successive (and annoying) postage rate hikes in the past 10 years, the U.S. Postal Service (USPS) finally decided to adopt an idea that several people had previously proposed, namely, that the USPS offer a thing called the Forever Stamp. The idea is simple: The Forever Stamp costs whatever the current standard First Class postage rate is (e.g. 41 cents), but can be used in the future, even if the rate increases (e.g. 42 cents starting May 12, 2008, as announced today).

What we, the USPS’s customers get from the Forever Stamp is the convenience of not having to worry if our standard First Class stamps are any good after a rate hike (I’ve still got some 37 centers lying around) … and not having to buy all kinds of pesky 1 and 2 cent stamps to compensate. (Meanwhile, email is free.)   The USPS doesn’t really lose much money, because even if customers stock up on Forever Stamps immediately prior to the rate increase, these purchases act as an interest-free loan to the USPS, to say nothing of the “shrinkage” resulting from unredeemed Forever Stamps that get lost in the shuffle.

All this is obvious.  And yet the analyst in me wanted to know EXACTLY how much one could save by stocking up on Forever Stamps.  Help cure world hunger? Design a better CSS template for my blog?  No.  I think I’ll put together a Google spreadsheet.  Here it is:

http://spreadsheets.google.com/pub?key=piH-UDyfEQzQQNxGKlfo4VQ

This spreadsheet illustrates how the “savings” that you get by stocking up on Forever Stamps will be quickly eroded by the cost of capital — ie, the tie-up of funds which could otherwise be used for other things, like municipal bonds, certificates of deposit, shares of Berkshire Hathaway or collectible Star Wars memorabilia.

Here’s a screenshot of the spreadsheet, using an example of buying 500 Forever Stamps, for a total outlay of $205 dollars. 

foreverstampsavings.jpg

In this example, assuming no monthly compounding, using even a modest 5% return on capital would mean that your savings on the Forever stamps would be gone after 6 months. Heck, the $5 you saved in the first place cost less than my making this spreadsheet and blog entry (although I haven’t played with Google spreadsheets in several months, so I count this exercise as an R&D expense). 

In summary, if it makes you feel any better then, yes, go ahead and by a few hundred Forever Stamps before May, especially if you have a whole bunch of June wedding invitations to send out. Once you’ve done that, wipe the smug, miserly grin off your face and donate your $5 in savings to a worthy cause.



JULY 2009 UPDATE:  Embarrassingly enough, this tongue-in-cheek post about the investment value of a Forever Stamp, has become the most popular post on this blog.  So, just to clarify:

1) The U.S. Postal Service’s First-Class postage increases are indexed to inflation, see chart below.

2) Therefore, the Forever Stamp, viewed as an investment vehicle, is also indexed to inflation.

3) Therefore, the Forever Stamp is very much like certain U.S. Government bonds, with all the same currency risk exposure (i.e., their value is tied to the U.S. dollar and the U.S. government). 

4) The main financial differences between Forever Stamps and U.S. Government Bonds: Forever Stamps can be bought in very small increments, and are redeemable only in exchange for a specific service (not cash).   They also don’t have serial numbers tied to a specific beneficiary, so they’re easier to lose/transfer between owners. 

5) None of this has anything to do with the romantic/emotional aspect of dusting off decades-old “Forever Stamps” in the middle of the 21st Century (assuming there still is a U.S. and a P.S.) and paying for $2+ First-Class letters with postage that cost less than half a dollar “back in the day.”  

6) In fact, it will help the USPS better balance its budget if more people pursued a “buy and hold” investment strategy with Forever Stamps. If you think about it, the Forever Stamp is actually a really clever way to expand the total population of stamp collectors.  Stamp collectors and junk mail marketers — two key elements to helping the government fund this simple, reliable messager service that we all take for granted.

us-postage-vs-inflation

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About danspira

My blog is at: http://danspira.com. My face in real life appears at a higher resolution, although I do feel pixelated sometimes.

Posted on February 11, 2008, in Accounting, Analytics, Business, Diversions. Bookmark the permalink. 14 Comments.

  1. weird u just got that.. we’ve had those forever stamps for about a year now…

    where u get dinged is, when u have a slightly overweight letter and it costs slightly more to ship.. but not enough to justify 2 stamps!

  2. But you must include the intense satisfaction,
    25 years from now, when postage is $14.75 per milligram,
    and you smugly slap that ancient 0.41 stamp on it!
    Oh, the casual saunter past the line, the light flick,
    the wide smile as you happen to loudly mention that
    “oh, yes, I’m just mailing another 41-cent letter!!!”
    Priceless!

  3. I had purchased flag stamps, which said First Class Postage (without a value), Forever stamps not being available. I was told by a postal clerk that these flag stamps would be accepted as first class until a new Forever stamp was printed. NOW I am told this is not true ??????????

    • same thing hapened to me exactly as you describe.

    • Yes. This is a common misconception, and there has been a bit of a learning curve even among postal workers.

      I’m not sure why the USPS has decided to release confusing U.S. Flag “First Class” stamps with no denomination printed on them, simultaneously with the Liberty Bell “Forever” stamps. With each postal increase, they only slightly change the image of the U.S. Flag, thus causing irritation to anyone except the hard core philatelists who delight in such minutia.

      The First-Class Flags fly in the face of the convenience and user-friendliness that the USPS is trying to achieve with the Forever Stamp initiative. What’s also annoying is that those First-Class Flags come in super convenient rolls… as far as I know, the Forever Stamps do not. The U.S. Postal Service is essentially saying, “We’ve lost ground to carriers like FedEx, UPS, and the Internet. So, we want to make snail mail more convenient than it was before… but not in bulk.”

  4. What if you stock up on a million stamps, put them in a warehouse, and sell them in ten years at a discount below expected new price?
    Are you saying that the capital is still eroded because the postage prices increase at less than inflation?

  5. Nope, it ain’t just inflation… it’s the cost of capital, ie, how much you would have to pay to borrow that money (or how much you wouldn’t earn through other investments, such as the stock market… err… d’oh…), to say nothing about the cost of your warehouse rent and flood insurance costs.

    But let’s run the numbers.

    If you would have bought a million stamps 10 years ago, at 25 cents apiece in 1998, that would have cost you a quarter million dollars. Today, those stamps would be worth $420k at face value. Your theoretical net gain (before selling at some discount) is $170,000, or 68% over 10 years. The compounded inflation rate for that period was, in fact, lower than 68%, but depending on which inflation index you use, it could take away a big chunk of your gross annual revenues ($17k per year… puh-leaze!), before expenses.

    But why stop at a million stamps, or even 10 years?

    Use Tom’s Inflation Calculator to scale this scenario in dollars or time. A hundred years ago, stamps cost 2 cents apiece. Twenty thousand dollars in 1908 would have bought you a lot of things… things that would be worth much more than $400k today… assuming you didn’t invest in horse-driven-buggy-whips…

  6. hmmm…what say you of the “Bachelor Factor” ? …

    let me provide an example…man in his late 20’s to early 30’s, living on his own, full or satisfactory social calendar with pesky monthly bills such as rent, cable and “magazines” that for whatever reason have not been updated to automic payment or online billing. the forever stamp provides an additional value/feature that is that it requires only a lick and a stick …does this bachelor know of the current stamp rate, care, have the time to comb through old stamps and delicately place on a letter or have any will to find out the exact rate needed? i would think (through self observation) that the bachelor would instead of seeking to reduce cost or attempt to maximize stamps, simply throw on enough stamps that it “should” cover the amount (even if substantially more than needed) thus mitigating any rationality for which you have put forth to the contrary.

    • Nicely illustrated scenario, Chambeaux. For said high-demand bachelor, who’d rather peel-and-stick than count-and-lick, I would definitely recommend a Man Purse full of Forever Stamps… well, full, but leaving some room for other unmentionables, bachelor’s necessities, and so forth.

      Note also that in the years since this particular blog posting/discussion started, the Forever Stamps are now available in a wide array of designs and single-sheet formats.

      http://www.ocinsite.com/index.php/news/comments/all_new_first_class_stamps_to_be_forever_stamps

      Therefore, our highly engaged bachelor will also have an extensive choice of imagery with which to express himself, not just bells and flags.

      Keep ’em coming, Chambeaux!

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