The latest consumer controversy to rage through social media is whether eating $19 avocado toast can endanger the financial future of millennials by keeping them from buying a house. A couple of days ago, a self-made Australian millionaire Tim Gurner, and a millennial to boot, gave this unflattering assessment of his peers:

“When I was trying to buy my first home, I wasn't buying smashed avocado for $19 and four coffees at $4 each. We're at a point now where the expectations of younger people are very, very high. They want to eat out every day, they want travel to Europe every year. 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.”

Secure Piggy Bank by Blue Coat Photos Flickr Licensed Under CC BY 2.0
Source: Secure Piggy Bank by Blue Coat Photos Flickr Licensed Under CC BY 2.0

At first glance, this sounds just like a different version of common sense advice that we hear very often from financial experts. For instance, it has echoes of David Bach’s latte factor. We can paraphrase it this way: Don’t waste money on frivolous everyday consumption if you want to be financially successful in the future.

However the comments generated a storm of protest and derision on social media that is still going strong. Basically, the criticisms fall into the following buckets:

1) Many readers interpreted the effect of avo-toast eating and home buying in a literal sense, and found it to be ridiculous. For instance, an article in GQ provided a (delicious) recipe for avocado toast with this snarky title: “How to make avocado toast at home (so you can finally buy a house).” This type of reaction was rampant on Twitter, leading to lots of funny tweets. For example, Lockdawg16 tweeted,

@TIME I don't drink coffee or eat avocado toast. I'll take one house please.

See more funny tweets here.

2) As a consequence, people on social media began to calculate how many avocado toasts would equate to a down payment on a house. In Chicago, a millennial would have to forgo 4,091 avocado toasts to make a down payment on a $225,000 house, while in Houston, the number would be 5,000 (because avocado toast is cheaper here). This led many people to conclude that basically, even the most avid avocado toast eater is not going to be able to save enough money by quitting avocado toast. This led to dismissing the comments.

Avocado toast by Jeremy Keith Flickr Licensed Under CC BY 2.0
Source: Avocado toast by Jeremy Keith Flickr Licensed Under CC BY 2.0

3) In a more serious vein, others argued that those who give such advice lack understanding of millennials’ lifestyles and circumstances. Their point was that millennials face far more serious challenges such as low-paying and unstable jobs, and crushing student loan debt that sets them back financially. Eating $19 avo-toast is the least of their problems.

I think what generated the uproar was the focus of the millionaire millennial’s criticism on one particular item of frivolous spending by his peers, avocado toast, that is so deeply associated with a particular generational group. (Middle aged and old folk aren’t connected to eating avocado toast). The story seemed to imply that millennials are so stupid for eating this frivolous food and wasting money. Everyone else is so much smarter. Some people also saw an obnoxious condescending tone in the quote. (You can judge for yourself).

How to interpret avo-toast-home buying, latte-retirement, and other similar linkages

Once we look past the snippy tweets and the mocking headlines and get to the heart of the linkage between frivolous consumption and longer-term financial outcomes, it is evident that Tim Gurner is making an extremely important and useful point.  Let me break the linkage down carefully into all the different things being said with it:

  1. Every consumer product has a certain value, some of which is functional (the avocado toast satisfies your hunger), and some of which is hedonic or emotional (eating the pricey toast is a symbol that you are a hipster and in-tune with your peers).
  2. Functional value is cheap to buy, hedonic value is expensive. Tap water is free if  you want to quench your thirst, water bottled from springs in the French Alps is expensive if you want to experience stirring emotions when you drink it. You have to pay dearly for hedonic value. You could easily buy the ingredients and make the avo-toast at home for very little money (less than 50 cents in Houston, a bit more depending on how much avocados cost where you live). But because you eat it in a fancy restaurant, you pay a 3,000% markup.
  3. When you are willing to pay the high markup for one item’s hedonic value, you are likely to pay such markups for other items also, leading to a cascading effect. For instance, if eating $19 avocado toast was your only indulgence, it wouldn’t matter very much. But people who eat this toast are also the ones who eat out every day and fly to Europe every year. The shorthand in such comparisons is that undisciplined spending rarely occurs for just one product. Instead it occurs in clusters.
  4. When you are willing to pay high markups for consumer goods on a regular basis, the undisciplined spending will start to add up and really hurt your financial situation. The harmful effect only applies when the $19 avocado toast is eaten regularly, say a few times a week. If it is eaten once every few months and savored, there is no problem. The financial damage will snowball because of compounding effects (or actually the failure of unsaved money to compound for millennials).
  5. Undisciplined spending is not specific to an individual or a group. You don’t have to be a millennial, or a boomer to spend errantly. While millennials have a proclivity to eat avo-toast, boomers may go for exorbitantly priced steaks of Wagyu beef . Other groups may spend money in their own undisciplined ways.

The general principle of the effect of undisciplined spending

The next time you come across some creative linkage of how a particular type of undisciplined spending  has an adverse long-term financial outcome for some group, whether it is avocado toast, café lattes, or some other item, keep this general principle in your mind:

If  ______ [insert group here] spend ______ [insert $ amount here] on ______ [insert frivolous item here] every ______ [insert frequency here], you will suffer ______ [insert adverse long-term financial outcome here].

Here are some examples of undisciplined spending – negative financial outcome linkages:

  • Avo-toast – home buying linkage: If millennials spend $19 on avocado toast every week, they will delay their ability to buy a house.
  • Latte – retirement linkage: If  Gen-Xers spend $4 on a latte every day, they will put their retirement at risk.
  • Wagyu steak – college savings linkage: If  Boomers spend $480 on a 16 oz. Wagyu steak every year, they won’t be able to save for their children’s college education.

We may have fun with them and send and like snarky tweets, but such linkages have validity. They give useful practical advice that applies to all of us, not just millennials, in a very graphic and memorable way.

About Me

My  forthcoming book is titled “How to Price Effectively: A Guide for Managers & Entrepreneurs.” I teach marketing and pricing to MBA students at Rice University. You can find more information about me on my website or follow me on LinkedIn, Facebook, or Twitter @ud.

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