They Can’t Even: A Generation Avoids Facing Its Finances

Many young adults overwhelmed by financial stress cope by ignoring the problem.

Some tune out bank and credit-card balances, lose track of their spending and rack up debt. Average credit-card debt rose 29% to $5,800 in March from a year earlier for millennials and increased 40% to $2,800 for Gen Z, Credit Karma said. Younger people were also more likely to have paid late fees or taken advances from their credit cards, a survey from NerdWallet found.

Psychologists call these behaviours financial avoidance and say it is a typical habit among younger people in any era.

But the pandemic’s economic whiplash followed by high inflation is making such avoidance more common, say economists and financial advisers. The consequences of ignoring bank and credit-card accounts include overspending, damaged credit and deep debt. Millennials in their 30s had the steepest increase in debt of any age group since the pandemic. Avoidance can complicate later milestones, such as buying a home or retiring.

Spending tends to be more satisfying than budgeting or tracking your expenses, “even if cognitively you know it’s not really the healthiest coping choice to engage in,” said Dr. Vaile Wright, a senior director at the American Psychological Association, who studies stress and anxiety.

Avoidance is a common coping mechanism for all forms of anxiety. Someone with social anxiety avoids parties. Someone with a fear of heights may avoid getting on a plane. The APA’s Stress in America 2022 survey found that 83% of adults reported inflation as a source of stress.

James Gay, 22, said he is reckoning with the effects of his financial avoidance since the pandemic.

In 2020, Mr. Gay moved from Mayo, Fla., to Tallahassee to attend Florida State University, sharing a three-bedroom apartment with two friends. With everything closed and his classes completely online, he said he ordered from DoorDash instead of cooking and shopped online to counter his uncertainty and boredom.

“That was my outlet to really enjoy my college experience,” he said.

He developed a particular affinity for Crocs, and now owns about 15 pairs.

“My budgeting plan was very loose,” said Mr. Gay, who was also responsible for his own health insurance, phone bill, utilities and car maintenance. “Sometimes I’d forget about the bills.”

He dipped into his savings to cover rent and utilities. Mr. Gay eventually received a call from his father, who had checked his credit-card account and saw he had used 90% of his $500 limit. After that he changed his ways.

Avoidance seems greatest among Gen Zs and millennials, a survey last month by Credit Karma suggests: 28% in each of those generations said they often or always feel a sense of financial dissociation. That is compared with 4% of baby boomers or older Americans.

“Our culture is really big on overconsumption. We’re constantly spending on things just to self-soothe,” said Alexis Howard, a 28-year-old financial adviser at Mariner Wealth Advisors in Emeryville, Calif.

Ms. Howard noticed this in her own spending behaviour. She ordered clothes and furniture on Amazon during the pandemic, small purchases that would snowball into bigger expenses than she realized. At one point she was spending about $500 a month on online shopping and takeout.

This year, she embarked on a challenge to keep her discretionary spending under $50 monthly. As a financial adviser, she said she knows how easy it can be to lose sight of bigger goals.

“People are really just prioritising happiness, and a lot of folks see happiness in traveling, eating out but simultaneously value larger long term goals like owning a home and retiring with wealth,” Ms. Howard said.

Young adults with lower-wage jobs may avoid budgeting and checking their bills because it makes them feel helpless, said Abigail Sussman, a professor of marketing at the University of Chicago’s Booth School of Business.

“If you feel like you’re really behind, then budgeting also is a reminder of how behind you are,” Prof. Sussman said. “If you set goals that are too high, it can be demotivating.”

It can also help to review what you spent in the past month with a financial buddy, said Jeff Kreisler, head of behavioural science at J.P. Morgan Private Bank. This should be someone who isn’t a romantic partner or family member but whom you trust enough to talk through certain purchases.

“It’s forcing yourself to examine your own decisions,” Mr. Kreisler said.

He recommends setting financial goals with friends. For example, if you are planning on going on vacation with someone, you can both agree to set aside $50 each week for the trip for the next four months, he said. That way, you are both holding each other accountable.

For decades, Australia has leaned into its reputation as the lucky country. But luck, as it turns out, is not an economic strategy.

What once looked like resilience now appears increasingly fragile. Beneath the surface of rising property values and steady headline growth, the Australian economy is showing signs of strain that can no longer be ignored.

Recent data paints a sobering picture. Australia has recorded one of the largest declines in real household disposable income per capita among advanced economies.

Wages have failed to keep pace with inflation, meaning many Australians are working harder for less. On a per capita basis, income growth has stalled and, at times, reversed.

And yet, on paper, things still look relatively solid. GDP is growing. Unemployment remains low. But that growth is increasingly being driven by population expansion rather than productivity.

More people are contributing to output, but not necessarily improving living standards.

That distinction matters.

For years, Australia’s economic success rested on a powerful combination: a once-in-a-generation mining boom, a credit-fuelled housing market, strong migration and a property sector that rarely faltered. Between 1991 and 2020, the country avoided recession entirely, building enormous wealth in the process.

But much of that wealth is tied to property. Around two-thirds of household wealth sits in real estate, inflated by leverage and sustained by demand. It has worked, until now.

The problem is the supply side of the economy has not kept up.

Housing supply is falling behind population growth. Rental vacancies are near record lows.

Construction firms are collapsing at an elevated rate. At the same time, massive infrastructure pipelines are competing with residential projects for labour and materials, pushing costs higher and delaying delivery.

The result is a system under pressure from all angles.

Despite near full employment, productivity growth has stagnated for years. In simple terms, Australians are putting in more hours without generating more output per hour. The economy is running faster, butgoing nowhere.

Meanwhile, government spending continues to expand. Public debt is approaching $1 trillion, with spending now accounting for a record share of GDP.

The gap between spending and revenue has been filled by borrowing for decades, adding further pressure to an already stretched system.

This is where the uncomfortable question emerges.

Has Australia become too reliant on a model driven by rising property values, expanding credit and population growth?

As asset prices rise, households feel wealthier and borrow more. Banks lend more. Governments collect more revenue. Migration fuels demand. The cycle reinforces itself.

But when productivity stalls and debt outpaces real income, the system begins to depend on constant expansion just to stay stable.

It is not a collapse scenario. But it is not particularly stable either.

Nowhere is this more evident than in housing.

The National Housing Accord targets 1.2 million new homes over five years, yet current completion rates are well below that pace. With approvals falling and construction costs rising, the gap between supply and demand is widening, not narrowing.

Housing is also one of the largest contributors to inflation, with costs rising sharply across rents, construction and utilities. Yet the private sector, from small investors to major developers, is struggling to make projects stack up in the current environment.

This brings the policy debate into sharper focus.

Tax settings such as negative gearing and capital gains concessions have undoubtedly boosted demand over the past two decades. But they have also supported supply. Removing them may ease prices briefly, but risks deepening the supply shortage over time.

That is the paradox.

Policies designed to make housing more affordable can, in practice, make the shortage worse if they discourage development. The optics may appeal, but the economics are far less forgiving.

It is also worth remembering that most property investors are not institutional players. The majority own just one investment property. They are, in many cases, ordinary Australians using real estate as their primary wealth-building tool.

Undermining that system without replacing it with a viable alternative risks unintended consequences, from reduced supply to higher rents and increased inflation.

So where does that leave Australia?

At a crossroads.

The country can continue to rely on population growth and rising asset prices to drive economic activity. Or it can shift towards a model built on productivity, innovation and sustainable growth.

The latter is harder. It requires structural reform, long-term thinking and political discipline.

But it is also the only path that leads to genuine, lasting prosperity.

The question is no longer whether Australia has been lucky.

It is whether it can evolve before that luck runs out.

Paul Miron is the Co-Founder & Fund Manager of Msquared Capital.

They Can’t Even: A Generation Avoids Facing Its Finances

Pandemic whiplash and inflation make managing a budget a challenge for young people

As housing drives wealth and policy debate, the real risk is an economy hooked on growth without productivity to sustain it.