The banking community is becoming more focused on Millennials as their next generation of customers. As the Baby Boomers start to retire the fresh capital is coming from the new generation entering the workforce, many of whom are looking at lower salaries than their parents, and most of whom are carrying more debt than ever before. The characteristics that define Millennials’ attitudes about personal finance are different, and will require a banks and credit unions to apply different tactics to get their business.
The U.S. Council of Economic Advisers reports that Millennials are the largest and most diverse segment of he population, making up about one-third of the country. Their world is shaped by technology, they value family, community, and creativity above all, and they are much more willing to invest in human capital. They also are in debt with student loans and are much more debt-averse, being less willing to take on credit card debt, car loans, and mortgages.
In its profile this week of Young Americans Bank, American Banker reports that those who were raised during the recent ‘08 recession are now reluctant to borrow; a trait that may follow them into adulthood. The Young American Bank is trying to educate the younger generation about credit to combat some of the fear of debt that has become a trademark of Millennials.
Bankrate conducted a study that shows that 63 percent of people between the ages of 18 and 29 do not have a credit card, and 35 percent of adults over 30 do not have a credit card. Of those 37 percent who do have credit cards, 40 percent pay the balance every month, as opposed to 53 percent of those over age 30. Although experts note that avoiding credit cards does damage their credit scores, this generation doesn’t seem concerned because they don’t intend to borrow. Another study conducted by Princeton Survey Research Associates International (PSRAI) shows that 33 percent those aged 19 to 29 say they are better off today than they were a year ago even though, statistically, Millennials earn on average $2,000 less than their parents at the same age.
The good news is that Millennials are saving. The same PSRAI study says that job security has improved (report 32 percent) and that young workers are saving for the future. Thirty percent said they are move confident about their savings.
We know that Millennials aren’t saving their money in a mattress and so they are using banks and credit unions, but they aren’t making maximum use of their money either. Fear of debt and the taint of the 2008 financial crisis have left younger depositors wary of financial risk, hence the “save without incurring debt” attitude.
What this means for banks and credit unions is that they need to use a different approach to attract Millennial dollars, not just for savings but for other financial needs:
- More education – Financial institutions need to do a better job of educating their younger customers and helping them manage day-to-day finances. Even though they have accumulated tens of thousands of dollars in student loan debt, many college graduates don’t understand how to create a household budget. These consumers will have to deal with debt at some point when they buy a car or a house. Better financial education and providing tools to help them manage their finances is one way to encourage both accumulating savings and taking on responsible debt, thus increasing share of wallet for the bank.
- More technology – Financial institutions have been aggressively embracing mobile banking, partly to attract tech-savvy younger customers. They need to do more. Millennials live online and on their smartphones, and banks and credit unions need to to more to incorporate financial management strategies into their online world. Developing integrated strategies that help depositors manage income, savings, debt, and spending as part of a holistic strategy will go a long way toward easing Millennial fears about debt.
- Better relationship banking – Building trust with Millennial customers starts with protecting their savings. Once they have an established relationship with the customer, developing new ways to help them save with credit card rewards, direct deposit, and other strategies will help customers achieve their savings goals and build trust with their bank.
The new generation of banking customers have different concerns than their parents, and a lot less trust of financial institutions. The banking community has to take steps to rebuild that trust, starting by understanding the needs and attitudes of Millennial customers.
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