| The lingering effects of recession and a molasses-speed recovery have had an uneven impact across different generations of consumers. Banks and credit unions, industry observers say, may be at an advantage if they can play a role in the financial lives of customers and members.
Given a generous helping of student loans and scant job prospects upon graduation, younger consumers tend to have little in the way of assets right now, but that’s not so remarkable in the grander scheme of things, said Ron Shevlin, a senior analyst at Aite Group.
Shevlin, who has conducted a wealth of research on the banking habits of Millennials and the post-recession financial lives of Americans across the age spectrum, shared a few insights he’d gleaned from recent research.
Gen Y: Beyond Technology
First, though, he split Generation Y and Millennials, typically defined as those born between the early 1980s and the early 2000s, into two age cohorts: 21 to 25 years old and 27 to 34 years old. That’s an important distinction because, as Shevlin points out, a typical middle-class American’s lifestyle begins to change in his or her mid- to late-20s. That’s when many people start getting married, buying houses and having children.
Aside from its engagement with technology to manage their financial lives, Shevlin said Generation Y is all-around fairly typical in their financial behaviors, no more or less thrifty than Generation X or Baby Boomers were at their age, but he noted a few other observations about this age cohort. For one thing, credit card penetration increased among the Millennial generation after the recession, and Millennials reported they were more likely to use credit cards than debit cards, which they pay down monthly, because of rewards programs.
Millennials are also more likely to seek out help managing their financial lives from a third party, often credit card providers, Shevlin found. That’s certainly a niche that banks could fill, but banking with Generation Y is also going to take more than good marketing.
“Part of the challenge isn’t simply about having technology. It’s a tougher issue. It’s about demonstrating that you can be trusted, and that’s a really tough job for banks today,” Shevlin said. “[Millennials] want help, but they don’t necessarily trust banks to provide them good help.”
Gen X: Financially Stretched
While much of the discussion about generational banking trends tends to concern Millennials, the recession and ensuing lackluster recovery have also taken their toll on the financial lives of Generation X and Baby Boomers.
“If you go back to the effects of the recession, even with the fairly significant gains in the stock market since 2008, 2009, the average household has still lost 15 percent of their net worth because of the loss in real estate values,” said Bill Handel, the vice president of research at Raddon, a business unit of Fiserv.
“This recovery has been fairly uneven,” he said. “The benefit has been for those who have investments in the market, as opposed to tangible assets like real estate. We’ve seen some recovery in real estate values, but not nearly enough to offset the losses.”
That means Generation X, born following the post-World War II Baby Boom generation, is also stretched financially, especially those who have much of their net worth tied up in real estate.
“Many of that Gen X group is underwater in terms of the value of their home vis a vis their mortgage,” Handel said. “They’re sitting in this negative position, and many of them have debated whether to simply get out. They’re not making enough money to save adequately for retirement.”
Baby Boomers may have weathered the recession best of all, but in that regard, they’re still a fairly lopsided group, Handel said. Those who have saved adequately for retirement will be just fine, he said, but those who spent their younger years “living for today” may be waking up now to a lack of sufficient retirement savings.
Banks and credit unions that can play a more active role in their customers’ and members’ financial lives may be at an advantage, particularly with younger consumers seeking financial advice.
Handel is encouraged by the trend in banking toward smaller branches featuring cross-trained staff, who leave the rote transactions to machines and instead engage their customers in conversations about their financial lives.
And while Millennials might not be an especially attractive demographic right now, they won’t be renting and paying down student loans forever.
“I remember when they said the exact same thing about Baby Boomers,” Handel said. “I don’t think it’s fair to say Gen Y won’t be homeowners. Their timeframe may be adjusted, but I think there’s a significant opportunity for banks and credit unions that can help them achieve those goals.”
Email: lalix@thewarrengroup.com
