Forever Stamps: Convenience or Scam?

Postal rate increases go into effect today, including a rise in the cost of mailing a first-class letter from 39 to 41 cents. But this time, there's a twist: the "Forever stamp," which will be sold for 41 cents so long as that is the rate, and then increase in price when the price of mailing a letter increases, except that Forever Stamps purchased at the old rate will still be valid for mailing a letter after the next increase. A good deal, right? Maybe, maybe not.

You might be tempted to buy Forever stamps as an investment vehicle, especially if you wait until the announcement of the NEXT rate increase. But as explained in this Washington Post story, that's not likely to generate an especially strong return.

Of course the Post Office isn't offering the Forever stamp as an investment vehicle. Its value is convenience and possibly some small cost savings. If you buy Forever Stamps now and through the next postal rate increase, you won't have to buy and affix a batch of 2 or 3 cent stamps when the rate next increases (to 43 or 44 cents, respectively, in these examples). Avoiding these small nuisances is certainly worth something. In addition, if you're the sort of person who forgets to buy the small-value stamps, or finds that the post office is out of them when you seek them, you could save money with Forever stamps. Instead of a pile of old lesser-value stamps for which you paid but never used, you just keep buying and using Forever stamps.

So what's the catch? The problem is that some significant portion of the population will start buying stamps in larger batches, no longer worried that the stamps will become insufficient to mail a letter before they have a chance to use them. And bulk purchases of stamps are an interest-free loan to the Post Office. The Post Office gets the money for the stamps (which cost very little to produce) long before it has to perform the service of delivering letters in exchange. Likewise, instead of keeping $41 (say) in the bank for an extra six months (or whatever) until the postal customer needs more stamps, buying a hundred extra Forever stamps on the theory that they last forever deprives the customer of the time value of that $41 (or whatever) for six months (or whatever). (Actually, ALL purchases of stamps are an interest-free loan to the Post Office, with the term varying depending on the time between purchase and use of stamps. My point is that Forever stamps will tempt people to keep the loan open longer.)

To be sure, consumers often make this sort of decision when they buy other sorts of goods in bulk. Stocking up at Costco on a twelve-pack of pickle barrels saves the customer the cost of making daily or weekly trips to the local grocery store for a daily or weekly supply of pickles. However, in the pickle case, the customer receives a volume discount for the purchase of large quantities of pickles that more than compensates for the lost time value of money (unless the customer ends up not eating most of the pickles or, as in my case, lives in a Manhattan apartment where space for pickle storage is at a premium). Not so with the Forever stamps, which cost the same amount whether you buy one or one thousand of them. (At the same time, even notoriously small Manhattan apartments probably have enough space so that a few dozen extra stamps aren't noticed.)

That's not to say that Forever stamps are a bad deal for everyone. As I said, the foregone time value of the money spent to buy lots of Forever stamps may be less than the savings from the combination of 1) avoiding the drawer full of outdated stamps and/or 2) avoiding the nuisance of buying and small-denomination stamps---what we might call the money value of time. So, for some people, Forever stamps are a good deal. Indeed, for just about everybody, Forever stamps are a good or no worse than neutral deal, so long as they don't alter their behavior to buy too many stamps too far in advance.

The real issue, then is awareness. So long as people understand the downside of stocking up on stamps (or pickles or anything else for that matter), they can make a rational choice about how many Forever stamps to purchase.