Their youth, coupled with the potential for deep student loan debt, makes it easy for financial institutions to consider postponing active pursuits of millennials and Generation Z. Now that millennials outnumber every other cohort and are poised to grow their assets by billions of dollars, however, that plan is a mistake.
Here’s why you must focus now on your next generation of customers.
Acting before the Window Closes
According to Visa, more than two-thirds (69 percent) of checking account openings occur prior to college, and the top reason for opening a bank account (56 percent) is to get a debit card. Visa reports that debit remains the primary payment method used by millennials, and they have seen a spike in debit card usage 10 years after the peak of the Great Recession. In fact, while millennials are now spending more money overall, they continue to use debit cards to keep their finances under control.
The Great Recession can be expected to have a continued effect on spending habits and payment choices of millennials. Groups are influenced by the collective experiences of the group itself, which is called the cohort effect. Other influences include income, age and other external influences.
As members of Generation Z open accounts, their cohort effect will lead them to expect even more innovative technologies from financial institutions than those demanded by millennials. Already, three-quarters of Gen Z use person-to-person (P2P) and digital payment apps, according to the Future of Money report. Less burdened with financial insecurity perhaps than the millennials, members of Gen Z may shift sooner to credit as their primary payment method – embedded in a digital wallet, of course. Seamless online account opening also will be expected.
Financial institutions must engage early with these consumers so they may leverage the large opportunities that lie ahead. If you miss them now, you will be hard-pressed to get these groups on board later.
Another Reason Why Millennials and Gen Z Matter
FIS’ PACE report this year talks about “The Life Event That’s About to Blindside Everyone” – the transfer of a projected $30 trillion of wealth from older generations to younger ones, which is expected to occur during the next 30 to 40 years. About one in 10 young consumers expects to receive an inheritance in the next two to three years, according to PACE, but few have the acumen or a financial advisor in place to handle their windfall.
Financial advisors are missing the opportunity to cultivate connections with the next generation of wealth, instead remaining focused on the parents of those groups. Only about one in 10 financial advisors meet with clients’ children more than once a year, and one in five never meet with the children, according to Investment News. The result is that two-thirds of children fire their parents’ financial advisor after they inherit their parents’ wealth.
Attracting and Retaining Young Consumers
It’s no secret that digital access to one’s funds is table stakes for young consumers – most of whom are digital natives. However, investment in innovative products is just the starting point for fulfilling their financial needs.
Communications with young consumers should be simple and digital. Millennials and Gen Zers learn in 140-character bites, not in longwinded prose filled with financial jargon.
Millennials need guidance on how to make wise financial choices to pay off their debt and grow wealth. According to a Global Financial Literacy Excellence Center report, only 24 percent of millennials demonstrate basic financial knowledge, but few try to close the educational gap by consulting with professionals.
If millennials are reluctant to approach traditional bankers for advice, will they employ digital support? New financial management tools that work behind-the-scenes and integrate seamlessly with user experiences may provide a solution.
What digital tools is your institution employing to fulfill the expectations and connect with Gen Z and millennial consumers?