Avocado toast vs subprime mortgages and crushing student loan debt

Colin Lalley 1600


Colin Lalley

Colin Lalley

Associate Content Director, Home & Auto Insurance

Colin Lalley is the associate content director of home and auto insurance at Policygenius, where he leads our property & casualty editorial teams. His insights have been featured in Inc. Magazine, Betterment, Chime, Credit Seasame, Zola, and the Council for Disability Awareness.

Published|6 min read

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Let’s just jump right into this: Australian millionaire Tim Gurner says that millennials can’t afford to buy a home because they’re "buying smashed avocado for $19 and four coffees at $4 each."

He’s wrong, for a lot of reasons.

Denigrating young people and shaming spending is nothing new. "Avocado toast" is the new "latte." Both are stand-ins for a tired, ineffective approach to budgeting through deprivation. To put it in internet meme parlance:

  • Skip your morning latte

  • ???

  • Profit!

This is wrong. The reason this trope has been so persistent is because there’s a kernel of common sense in there. Save more, spend less, and that will make a difference when it comes to your money! But it’s a straw man. Stopping frivolous spending obviously isn’t a bad thing, but it’s ever hardly the only thing keeping someone underwater on a mortgage or behind on their student loan payments.

Problem: Student Loans

And speaking of student loan payments: the real reason young people can’t afford a house! The average student loan debt totals $30,000 per borrower. The average student loan payment for people in their 20s is over $350, there’s an 11% delinquency rate, and the debt is spread out over 44 million people – there’s a good chance young people have other things on their mind financially than what’s topping their toast.

According to SmartAsset, the average millennial salary in real terms is about 20% less than a comparable baby boomer salary, clocking in at a little over $35,500 a year, or $684 a week. After $350 student loan payment, $1,200 in rent, a few hundred in health insurance, and other non-avocado toast related expenses, that’s quite the 8-ball to be behind when you’re trying to save up 20% for a home down payment and budget for a mortgage.

To put things in perspective, $1.4 trillion in student loan debt is equal to 73,684,210,526 pieces of $19 avocado toast. (And seriously—where does one even find $19 avocado toast?) Making higher education more affordable might be a better campaign to rally around.

Problem: The housing industry

Homeownership is often looked at as an investment, and a way to build wealth. Assuming someone wants to own a home, and the taxes and additional costs (like upkeep) that come along with it, it’s not always the best financial move.

It’s been shown time after time that homeownership isn’t the silver bullet investment option it’s made out to be. As Forbes notes, "from a pure investment standpoint, the stock market is much more likely to give you higher returns over time than housing is likely to provide." Money Under 30 shows that when adjusted for inflation, average U.S. real estate values gained less than 1 percent in the 20th century. They go over a number of other issues with the premise of house-as-investment, such as:

  • Your home is your primary residence, which limits your choices of when to sell and buy.

  • It’s only an investment if you actually sell it.

  • Houses have high carrying costs and don’t generate cash flow.

Homeownership is less investment and more speculation. It’s the reason why we as a species spent entirely too much money on Beanie Babies.

Plus, in some places, it just makes more sense to rent.

It’s a mystery as to why homeownership is the end all goal for many people, and why it’s one of the "adulting" benchmarks young people are measured against. And our lust for homeownership has a dark side, as seen in the Great Recession.

One of the more egregious things Gurner said in the interview was that "The people that own homes today worked very, very hard for it (and) saved every dollar, did everything they could to get up the property investment ladder."

If that sounds ridiculous, it’s because it’s the same logic that dictates that "healthy people lead good lives." The corollary, of course, is that sick people don’t lead good lives. In this case, it’s implied that people who don’t own homes aren’t working hard. The 12 million people who received a subprime mortgage preceding the financial crisis probably disagree.

Providing subprime mortgages – knowingly giving people the ability to get a house they couldn’t afford – increased homeownership rates. Demand went up, and "the resulting demand bid up house prices, more so in areas where housing was in tight supply. This induced expectations of still more house price gains, further increasing housing demand and prices."

So sure, sometimes avocado toast is why people can’t afford homes. Other times, it’s a systemic artificial rise in home prices crashing the economy and making it difficult for young people to start their careers and see real income gains.

Problem: Evidence

Or rather, a lack of evidence. Are young people spending money on avocado toasts and "travel to Europe every year"? Seems doubtful. But even if they were, would that be enough money to eat into a down payment?

The nice folks at The New York Times crunched the numbers. According to their back of the avocado-stained napkin math, "even if millennials assumed the eating-out habits of baby boomers, it would take around 113 years before they could afford a down payment on a home (assuming a 20 percent down payment on the median price for a home in the United States, $315,000 in March 2017, and a 1 percent yearly yield rate)." For those prudent spenders who choose to eat their avocado toast at home, you’d need nearly 450,000 servings of toast to buy a home.

Millennials also spend less on travel than older generations, so it doesn’t seem like jet-setting to Europe accounts for the difference in generational homeownership, either.

Also, a quick, informal survey of people I know shows that the statement that "this generation is watching the Kardashians and thinking that's normal – thinking owning a Bentley is normal," is, sadly, also incorrect. No one thinks a Kardashian is normal. In fact, that might be the most blatant mistruth of Gurner’s whole interview.

Not a problem: Avocado toast

I’m sure Tim Gurner worked hard to get to where he is (he does own a house, after all). But let’s not gloss over the fact that he "began his career as a property investor after purchasing a gym in Melbourne’s south in 2001 with the help of $34,000 borrowed from his grandfather." That’s a pretty good way to start buying real estate, or a massive amount of avocado toast.

Gurner’s supporters on the internet have expressed bewilderment that people disagree with him, and argue that avocado toast is a symbol, that he wasn’t being literal. And, again, he’s not completely wrong: cutting spending will help you buy a home. But it’s only one aspect of homeownership, and the others involved aren’t usually within one’s control.And even as a symbol, avocado toast boils down to trite "save more, spend less" advice.

Think of it this way: If someone said they had concerns about how to save for retirement, you might tell them about the different tax-advantaged accounts at their disposal, the difference between traditional and Roth IRA accounts, and taxes, fees, and penalties they should watch out for. Or you could tell them, "Oh, what you need to do is save more money for when you’re not working." Which of those is more helpful?

The better option? Figure out what you’d need for a down payment on a realistic home. Put a budget in place, using You Need A Budget or a similar app to keep you on track. If you want or need to, take a side gig or freelance work to meet your goal. Know what you can negotiate to lower the cost of buying a home. Find out how you can pay off student loans faster.

And that avocado toast? Cutting it out entirely might actually cause you to spend more. Manage your desires, and maybe try to find avocado toast that doesn’t cost nineteen dollars.