It seems like Gen Y is to financial institutions what Moby Dick was to Captain Ahab—an elusive creature that remains just out of grasp. If you're like many institutions, you've given up on the hunt for Gen Y's business and have opted to sit on the sidelines and wait for Millenials to come to you whenever they are ready (a.k.a. have made enough money or have increased their credit score so they are "worth your time"). But, this strategy, or lack thereof, could potentially lead to your demise—sooner rather than later.
What made Gen Y the 'white whale' they are today?
A majority of Gen Y grew into adulthood during one of the worst financial crises the U.S. has ever faced. During this time, financial institutions were focused on delinquencies, collections, repossessions, and every other awful thing that resulted from the recession.
At the same time, Gen Y's parents, the Baby Boomers, were worried about job security, losing their homes and/or cars, and keeping their families afloat. They focused on the here and now, doing whatever they could to maintain the lifestyles they lived before the economy tanked. Boomers cut back on expenses, refinanced loans, took money out of investment funds, etc., etc.
Folks were so consumed with putting out fires created by the recession that no one had time to stop and consider the financial future of Gen Y—much less teach them the ropes of how to manage their money. So, these 18-34-year-olds left the nest entirely (or at least, mostly) unprepared, with no knowledge, experience, or good examples to follow during the next phase of their financial lives.
Fortunately for Gen Y, their generation is filled with clever, tech-savvy problem solvers—they have, thus far, been able to manage their finances somewhat successfully. Although this generation doesn't have the spending power or financial literacy of Baby Boomers or Gen X yet, they are at the age where they have developed (or are still developing) their spending habits and are building relationships with those who provide the financial tools and education they need to effectively manage their money.
Unfortunately for you, the majority of those who are helping Gen Y manage their money are not banks or credit unions. What's more, the way Gen Y manages their money is very different than the way their predecessors manage(d) it. Rather than opening a checking and savings account and going to their local financial institution for a loan like their parents would have done, many Millenials are opting for prepaid cards, check cashing services, and, of all things, payday loans—GASP! They also value convenience more than pretty much anything else. This means, your traditional financial products and old way of doing business aren't going to satisfy their perceived needs.
Why is Gen Y so important?
Whether you like it or not, it's time to rethink your financial institution's overall strategy and make Gen Y a top priority. Here's why:
According to Javelin Strategy & Research analyst, Aleia Van Dyke, "by 2025, Gen Y will account for 46% of the nation's income, making them a critically important consumer segment for financial institutions."
In a study by Javelin titled Gen Y: How to Engage and Service the New Mobile Generation, it was concluded that by 2015—yep, that's next year—Gen Y will earn more income per year than Baby Boomers, and by 2020, they will earn more than both Baby Boomers and Gen X combined.
As you can see, there is no ignoring Gen Y. This group is massive and is going to be a real power-player in just a few short months. So, how is it that they are still considered "under-banked"?
Some financial institutions are desperately trying to find ways to tweak their business model so that they can cater to this generation in a cost-effective way—which may or may not be possible—while others get overwhelmed with just the thought of what it will take to accomplish such a feat and simply give up before trying.
But, if you don't change today, you're setting yourself up for a much more difficult transition later when the next generation of young adults comes of age—that is, if your institution is even still around at that point.
What you can do to wrangle in Gen Y-ers and (hopefully) ensure your financial institution will be around for years to come
Here are some of the things all institutions must do to meet this segment's needs and expectations:
Offer some of the financial products that Gen Y prefers to use. One product that's easy to add to your lineup is prepaid cards. According to another study by Javelin Strategy & Research called Prepaid Cards and Products in 2012: Enabling Financial Access for Underbanked and Gen Y Consumers, one out of six Millenials prefer to use prepaid cards over debit and credit cards, so if you offer them, Gen Y-ers may start flocking. Click here to learn more about the product Gen Y loves.
Make it easier and more convenient to access funds—focus on improving your online banking experience, offer mobile banking and/or mobile deposits, and make sure you have branches and ATM locations in areas where Gen Y-ers live, work, and spend their time. Remember, convenience is key to getting Gen Y's business. Click here to learn more about Gen Y and convenience.
Once you lure them in with the product(s) and convenience they want, build a meaningful relationship with them. The way you build a relationship with this group is different than how you would with previous generations. So, know your audience. Learn what makes them tick, their likes and dislikes, and what language, terms, or phrases you should or shouldn't use.
Expand your marketing channels so they can interact with your brand in multiple ways, and change the way you market so it's not as blatantly salesy. Millenials don't trust sales pitches or "look at me" marketing tactics, and they can spot them from a mile away.
Provide robust financial education, and make learning tools and resources accessible via multiple channels. Also, make sure all (or at least most) of your employees can answer questions intelligently and in-depth. Millenials value knowledge, but they won't trust what you tell them if they don't understand the who, what, where, when, and why of something.
Over the next few weeks, I'll be writing a series of posts that go into each bullet in more detail, so stay tuned!
In the meantime, let me know what your institution is doing to attract, acquire, and retain the business of this generation. Feel free to share your successes and/or failures.