Your mental models are out of date

My son's friend won over £60k betting on football recently. That's roughly what my son will owe after three years at university, split across course fees, accommodation, and living expenses.

Gambling is huge among young people, as you'd expect given the ubiquitous adverts and the ease of access via smartphone apps. Most people lose money gambling; it's just another way in which wealth is siphoned from the bottom to the top of society. The CEO of one of the UK's best known betting companies, for example, earns hundreds of millions of pounds per year.

This post suggests that the problem is so entrenched and ubiquitous that the smart move is to “go long” on degeneracy. In other words, the system is so broken, and people so disbelieving in the previous narrative, that now is a good time to buy shares in companies that profit from their desperation.

Let's say that we don't want to do that, but instead give young people sound advice. What should we tell them?

Mental models from a bygone era

The financial guidance given to young people today comes from people who experienced an entirely different economic reality. Boomers hold fundamentally different mental models about how wealth accumulation works, learned in a completely different era. For example, my dad bought a house for 1x his annual salary in his twenties, whereas My first house cost me about 5x my annual salary. What will it be by the time my own children try and get on the housing ladder?

Wages are currently growing at an average of 0.1% annually rather than the 2.7% my parents' generation could expect. At the same time, inflation on household essential items has risen sharply post-pandemic, rising 19.1% in the 12 months to April 2023 alone. 81% of young people are, unsurprisingly, worried about money – and are finding it more difficult to get a job.

The number of entry-level job postings requiring between zero and two years of experience has declined by 29% since January 2024. Junior tech roles have dropped a whopping 35%, presumably because these roles are on the front line of AI and automation. Some are talking about it being almost as if the first rung of the career ladder has been removed.

Traditional career advice, the kind that I received when I was younger, assumes linear progression . The world is no longer like that and this model that no longer exists. What some might call “job-hopping” is actually strategic career building in a market that's changed fundamentally.

The fantasy of saving for a deposit

Let's talk about the standard advice to “save for a deposit” on your own place. This ignores basic arithmetic: saving 5% of a £30,000 salary (£125/month) would yield just £10,500 after seven years, which is nowhere near the £50k now required for a typical deposit. Advice to save for a deposit presumes a world where house prices track wages.

What about pensions? I'm 45 and I paused mine last year due to financial constrains. What about younger people who are even worse off and for whom retirement seems a long time away? A median earner saving at auto-enrolment minimums could retire with a £158,000 defined contribution pension pot, translating to just £13,000 annually.

And then, of course, there's student debt, which fundamentally alters life decisions. Graduates, when they can actually get a job report deliberately taking lower-paying jobs to avoid higher repayment thresholds. One teacher noted that her 38% effective tax rate makes career progression financially counterproductive.

Going to university was a no-brainer for my parents' generation who received maintenance grants. It was sensible advice for my generation when a degree cost £1,000 and opened doors. It's a lot harder to defend these days when graduates start working with £40,000+ debt and careers that don't justify the cost.

The illusion of choice

Back in 2016, the Secretary of State for Work and Pensions, Damian Green, described the gig economy as “exciting” as it means the “rise of the everyday entrepreneur” where people can “pick and mix their employers.” In reality, we live in the world of the precariat, where tree-quarters of UK workers cannot count on a fixed monthly wage. Zero-hour contracts have been the the key driver, especially among young people. 32% of young people explaining their participation in this kind of work in terms of lack of alternative jobs compared to 14% of middle-aged workers.

The narrative that gig work offers “freedom and flexibility” obscures the exploitation, alienation, and precarity involved. Unsurprisingly, most gig workers earn less than their equally-educated counterparts who are lucky enough to secure traditional contracts. We can talk about hustle culture, but 39% of Gen Z are juggling a part-time or full-time job with freelance work. This is a rational approach when any single income stream might disappear.

Risk preferences

It's no surprise that under this kind of economic constraint, we're seeing more risk-seeking behaviour. People familiar with the work of Daniel Kahneman and Amos Tversky – perhaps through the book Thinking, Fast and Slow – will be familiar with Prospect Theory.

That is to say, individuals assess their perspectives on gain and loss in an asymmetric manner. People are not completely rational agents and, for example, might only be compensated for the pain of losing £500 by the pleasure of earning £1,000. It's the reason we're seeing a huge rise in betting, trading crypto, and investing in courses advertised via social media promising six-figure incomes.

In the US, Gen Z and Millennials account for 76% of all betting activity. In addition, prediction markets grew from essentially zero in 2020 to $44 billion in annual volume by 2025. It might seem like “degeneracy” or even stupidity, but it's actually a rational response to the structural conditions faced by young people.

So... what do we do now?

The mental models society has used to advise young people – work hard, save patiently, climb the career ladder, max out your pension – assume structural conditions that no longer exist. False mental models lead to sub-optimal choices from both individual and societal perspectives.

I don't think it's appropriate, though, to give a long shrug and accept that young people should gamble on sports betting or crypto. Instead, I think we need to acknowledge that default advice is broken, and start building better options.

What might that look like?

First, we need to be honest about what education actually costs and what it actually returns. I did a degree in Philosophy with no expectation that it would lead directly to a well-paid job. I could afford to do so when course fees were £1,000 per year. I'm not sure I'd do so now when fees are over £9,000. Telling young people to go to university because “education is good” is only really sane advice if you come from a rich family.

Instead of a cost/benefit calculation, I think we need to radically restructure student finance. We should be investing in young people and, like other countries, the UK need to be looking at education as an investment, not an individual financial calculation.

Second, we need some real talk about career progression. Young people need frameworks for building diverse income streams and managing precarity. This isn't something shameful, but as a genuine skill for the 2020s. Given the amount of redundancy going around, this should not be seen as a personal failure but a structural feature of modern work.

Third, and this is somewhat outside my area of expertise, we need to do something about housing. Advice to “save harder” is absurd when house prices have outpaced wages by a factor of 4x. It's not that young people are failing at saving, it's that the system is failing them.

Fourth, we should talk about what it means to build financial security in 2026. Some might want to invest in index funds. Others might start a small business, join a cooperative, or develop skills with a “moat” (i.e. a hard to automate). For most, it might be a combination of the above. There's no single right path, and pretending there is explains why young people look for alternative routes.

Finally, we need to acknowledge that young people making speculative bets aren't stupid or weak. They're responding rationally to the world they inherited. The failure isn't theirs. It's ours, for giving them mental models designed for an economy that no longer exists.

The good news, I think, is that mental models can be updated. Structures can be rebuilt. Pathways can be created that don't require young people to either accept permanent precarity or take moonshot bets on prediction markets. What we will need is political bravery requiring different thinking, different policies, different advice.

Our first step is to admit that the current advice isn't working. And that conversation hasn't even started yet.