Claremont Colleges Scholarship @ Claremont CMC Senior Theses CMC Student Scholarship 2018 Is Avocado Toast the Reason I'm Still Living with My Parents? Brendan MacDonald Claremont McKenna College Recommended Citation MacDonald, Brendan, "Is Avocado Toast the Reason I'm Still Living with My Parents?" (2018). CMC Senior Theses. 1762. http://scholarship.claremont.edu/cmc_theses/1762 This Open Access Senior Thesis is brought to you by Scholarship@Claremont. It has been accepted for inclusion in this collection by an authorized administrator. For more information, please contact [email protected]. Claremont McKenna College Is Avocado Toast the Reason I’m Still Living with My Parents? submitted to Professor Eric Helland by Brendan MacDonald for Senior Thesis Fall Semester 2017 4 December 2017 MacDonald 2 ABSTRACT Is avocado toast the reason that I am still living with my parents? In other words, does the consumption of avocado toast, or more specifically eating out in general, have any impact on one’s ability to be a homeowner. In May of 2017, an Australian real estate developer by the name of Tim Gurner was asked to provide advice to young people who could not afford to purchase a home. He responded by saying, “when I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,” (Victor, 2017). While the claim may appear to be laughable at first glance, this is not the first time that statements such as this have been made. The United States Census Bureau tells us that annual homeownership rates for individuals under the age of 35 has been on the steady decline. Additionally, per Goldman Sachs, it is known that the percentage of adults age 18-31 that were married and living in their own homes has decreased from 56% in 1968 to 23% in 2012. This paper assesses and compares the spending habits of different generations, working to discern if there are notable differences particularly between Millennials and other generations. Data sets from the Consumer Expenditure Survey (CEX) and Zillow between the years 2000-2013 were examined. Although there is not data on avocado toast specifically, it is possible to broaden the hypothesis to examine the expenditures on the consumption of meals prepared away from home. For the purpose of this study, I take Tim Gurner’s statement and apply it more broadly to the idea of spending money on the experience of eating out. The results show that the consumption of avocado toast, defined as money spent on meals prepared away from home, does not have an impact on whether an individual owns a home, nor is it an indicator as to whether they will be renters or living with their parents. Rather, the results indicate that owning a home leads to consuming more avocado toast. This means that although it is commonly perceived that Millennials are consumers as opposed to savers, their inability to afford home ownership does not have any direct connection to their spending habits on avocado toast, and more broadly, eating out in general. MacDonald 3 TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND 1. What is a Millennial? 2. The Avocado Toast Hypothesis 3. Previous Studies III. DATA 1. Data sources 2. Millennial and Avocado Toast definitions – Other variable generation IV. METHODS V. RESULTS VI. CONCLUSION VII. DISCUSSION VIII. REFERENCES IX. LIST OF TABLES 1. Table 1: Summary Statistics of Dependent Variables 2. Table 2: Dependent Variables vs. Dwelling Variables: No Millennials 3. Table 3: Summary Statistics of Dependent Variables by Reference Age Cohort 4. Table 4: Dependent Variables vs. Dwelling Variables: Entire Sample 5. Table 5: Impacts of Additional CU Members and Other Reference Person Demographics X. LIST OF FIGURES 1. Avocado Toast 2. Annual Avocado Toast Expenditure vs. Number of Millennials 3. Annual Avocado Toast and Post-Tax Income vs. Number of Earners in the CU 4. Percent of Post-Tax Income Spent on Dependent Variables: Owners vs. Renters 5. Annual Avocado Toast and Median House Price by Year 6. Number of Millennials in Millennial-Only Households by Year XI. APPENDICIES 1. Variable Generation 2. Complete Regression Results MacDonald 4 INTRODUCTION Avocado toast and home ownership. Are they connected? Tim Gurner is not the only one who believes so. In 2016 demographer Bernard Salt wrote, “I have seen young people order smashed avocado with crumbled feta on five-grain toasted bread at $22 a pop and more...how can young people afford to eat like this...How often are they eating out? Twenty-two dollars several times a week could go towards a deposit on a house,” (Levin, 2017). In addition to these claims, recent research indicates that Millennials are electing to live with their parents more than any previous generation (Millennials Infographic, 2017). The Consumer Expenditure (CEX) data used for this paper provides demographic information, expenditures, and income for Consumer Units (CUs) which are essentially households. Data from Zillow provides the monthly median house sale price for each state – when all 12 months in the year are averaged, that provides the year median house sale price for the state. My proxy for avocado toast is calculated by taking the quarterly average of money spent on food prepared away from home and extrapolating it out over the year. Therefore, avocado toast in this paper does not mean just avocado toast.1 It represents something much broader – the total amount of money that is spent on the experience of dining out. This paper explores the validity of claims above which state that the Millennial generation is unable to purchase houses due to their frivolous spending and unprecedented 1 Gathering data specifically on avocado toast consumption and being able to apply it to this study would require an in-depth survey specifically designed for this paper. While it does not include demographic identifiers, Square, a credit card payment processing company, has been able to calculate that American consumers are spending roughly $900,000 monthly on avocado toast (Steinmetz, 2017). MacDonald 5 demand for consuming food prepared away from home, leading to the inference that not being able to own a house leads to higher numbers of Millennials living at home with their parents for a longer period (Victor, 2017). The null hypothesis would then be that spending money on food prepared away from home would have no impact on one’s ability to afford home ownership, regardless of if they are a Millennial or from a different generation. This is important because if it is found that spending money on food away from home does indeed have an impact on home ownership, Millennials would be wise to save their money towards the goal of purchasing a home, as opposed to spending it for consumption in the short run. In brief, the results of this paper show that Millennials do indeed have different spending habits than other generations, however, they do not make an impact on their ability to afford purchasing a home. BACKGROUND Before this paper can delve into details, there are two things that must first be defined and explained: (1) What is a Millennial? (2) What is the avocado toast hypothesis? 1. What is a Millennial? There are varying interpretations of who makes up the Millennial generation. Some sources will say Millennials are individuals born in the 1977 to the year 1996, others claim that the Millennial generation starts in 1980 and goes until the year 2000 (CGK, 2016; Millennials Infographic, 2017). For the sake of this paper and simplicity, the Millennial generation consists of people born between 1980 and 2000 for several reasons, primarily being that data from the CEX implemented many variables, used in this paper, for the first time in the year 2000. By labeling Millennials as being born between 1980 and 2000, all Millennials can be evaluated using the same variables and measures. MacDonald 6 The reason why this paper looks to explore the variation in spending habits between generations is because between the years of 1980 and 2000, the world underwent many changes and developments socially, technologically, and economically (Roser, 2017). The Millennial generation is a group of people that was exposed throughout childhood to technological advancements that have made many things more accessible and provided opportunities for automated experiences (Millennials Infographic, 2017). This could lead potentially show that Millennials spend more money now on short run consumption because they have more access to particular goods that other generations did not have. Millennials are almost always depicted as being spenders, not savers, at least in mainstream media and news. They are commonly presented as a generation that lives in the now and never focuses too seriously on planning for their future. If you simply Google, ‘What is a Millennial,’ the first article that pops up is an article that features a large picture of a young person consuming a luscious piece of avocado toast with the caption, “Millennials may not be able to buy a house, but do they Avocado?” The first piece of text says, “You may not want to admit it, but if you were born between the early 1980’s to the mid-1990’s, you, my friend, are a millennial,” (Metro.co.uk, 2017). Immediately, Millennials are portrayed as something that people do not want to be – being a Millennial is bad. This paper whether there is a difference between the ways that Millennials spend their money when looking at other generations. Are Millennials truly larger spenders relative to other generations? And if they are, what does that mean for their future? It could be that Millennials spend their money in different ways but their long-term goals are still the same as they have been with other generations.