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Avocado Toast and the Struggle to Save

August 3, 2017
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On a regular basis, experts of all sorts take to the media to chastise “the kids” for being immature and frivolous. To hear them tell it, Millennials are destroying the very fabric of civilization.  When not mocking them for participation ribbons (of which, as a Gen X kid, I have a vast collection), the experts are blaming Millennials for not saving enough, for spending uncontrollably, and for not adequately considering their future. 

The latest uproar involves a television interview from Australia that went viral in the US on May 15, 2017.  In it, a 35-year-old multi-millionaire Melbourne property mogul named Tim Gurner blamed Millennials’ fondness for buying $19 smashed avocado toast as the reason why they could not afford to enter the pricey property market.  The accusation was covered in virtually every major media publication in the US, as well as all over social media, outraging many.

But the outrage was surprisingly different for each reader.  Some readers could not believe that Millennials were so spendthrift as to buy avocado toast for $19, yet still blame society for not making housing affordable.  Others could not believe that someone whose success came from family money was suggesting that not eating was the solution to independent wealth.

You see these stories all the time.  “Don’t drink that latte! If you put your latte money in an investment account, you’ll afford that house/pay for college/fund your retirement.”  Is it true? 

Let’s say a consumer, age 29, spends $11 twice a week eating out, a number which comes from a 2015 VISA study.  If instead of eating out, they were to bring their own avocado toast ($2.60 if they bought their own organic avocado and non-GMO wheat bread – we’re talking Millennials after all), they would save $16.80 a week.   Over the course of a year, that’s $873.60.  Put into an investment account, with a 5% annual return in the market (after having paid the management fees, of course), these Millennials would have a nice growing nest egg for that new home, right?  After all, to afford the down payment of the median new home in April 2017 ($309,200), you only need $61,840.  That lunch savings will get you there in only… 30 years.  30 years, 10 weeks to be precise. 

So you can understand the frustration when told that your spending is costing you, when even if you save that money, the average 29-year-old putting extra into savings at a high rate of return will be able to afford the average house when they’re 59. And ready to start saving for retirement?

In 1984, when the average Baby Boomer (born 1946-1964) was 29 years old, the median house value in the United States was 3.56 times the median household income.  Today, that ratio is 5.29 times. (Data courtesy of the St Louis Federal Reserve.)  All the price relief from the recession and accompanying housing crash has been wiped out as prices have once again soared while incomes remain stagnant.  The net result is that according to our research, homeownership by Millennials has dropped from 43% in 2012 to 35%today, with the number of those living with their parents rising from 16% to 22%.

This is not normal.  Remember that the Millennials are a fixed cohort of those born from 1979 to 1999.  So their median age in 2012 was 23, but is 28 today.  The mid-20s ought to be a time to start families, purchase homes, and build careers, and in doing so, pump significant dollars into the economy.  The median Baby Boomer was in his/her mid-20s from 1978 to 1983 – they settled down and fueled the recovery of the early 80s in the process.  The median Gen Xer was in his/her mid-20s from 1994 to 1999 and (without getting ANY credit whatsoever) fueled the boom of the late 90s.  We have not seen any similar boom over the past five years, except on the top line of the stock market.

Within the next few months, we will be releasing a new Raddon Research Insights Paper on the Mass Market.  One of the more noteworthy findings in this study is that 36% of American households have fewer than $1000 in total savings.  These households are one medical emergency away from having no savings at all.  For Millennials, it is even starker: 48% have fewer than $1000 in savings.

Do Millennials need to save more?  Certainly, and 44% say that is a financial goal, but being able to save more will not compensate for the massive inflation in housing, education, and health care that America has seen in their lifetimes.  Making their own avocado toast at home will not achieve that goal.

Now that I’ve depressed you, what does this matter to you?  What matters is that these Millennials are your consumers.  Finding ways to boost their savings, to help them buy those homes, to plan and save responsibly will be rewarding to your bottom line.

Consider first-time homebuyer programs that require small down payments, automated savings plans, budgeting tools, and financial planning services for young professionals.  These programs can help make you an advocate for your Millennial consumers, and in the process, bring you their significant deposit and loan business.