Gen Y’s Financial Needs Are Maturing

Credit unions that have invested in attracting Gen Y are finding their efforts are now paying off as Gen Y moves into mortgages and auto loans.

They were once a generation that offered little financial return for credit unions. They had virtually no credit history. They were in school. They didn’t have their own homes or theirown cars. Many needed their parents to co-sign for a credit card.

Once mostly teenagers, Gen Y, which some also refer to as the Millennials, is getting older. Its members are now roughly 19 to 31 yearsold, and credit unions are finding a growing demand among them for financial products. They are starting to shop for their first cars and homes, meaning they need mortgages andauto loans. They might have once held only a credit card with their credit union, but with new jobs they are now opening a checking account and setting up direct deposit.And their student loans are likely ripe for consolidation, giving credit unions an opportunity to shore up their loan portfolio while helping this generation on its path towardfinancial independence.

After countless marketing campaigns aimed solely at getting college-age members to join including luring them with checking accounts with generous overdraft protection or POS returns credit unions can now focus on deepening those relationships.Credit unions achieved a record-high share draft penetration of nearly 50% in 2011, according to Callahan & Associates’ Peer-to-Peer software. That improvement in member value was likelydriven, in part, by Gen Y members and their evolving life needs.

To continue to deepen relationships with Gen Y members, who were born in the 1980s through the mid-’90s, credit unions this year can focus on strengthening their first-time homebuyers programs, marketing auto loan campaigns toward Gen Y, leveraging student loan consolidation opportunities, and positioning credit cards as a tool for debt management.

First-Time Homebuyers

Fibre Federal Credit Union’s ($732.4M, Longview, WA) Gen Y outreach focuses on drawing more Gen Y members, but the credit union is also considering starting a first-time homebuyersprogram to prepare for when the housing market rebounds and Gen Y is ready to buy, says senior vice president of marketing, Lesley Carrell.

People in this age group are in their lending years just graduating college, just getting married, Carrell says. If you can get them when they’re young, and get theminto their first auto loan or credit card, your chances of having a long-term relationship with them are pretty good.

Fibre FCU, which has 67,665 members, launched radio advertisement and television commercials aimed at women younger than 30 that promote auto loans, credit cards, and personal loans. As a result, Gen Y is a quickly growing demographic at Fibre FCU. Morethan half its new members were younger than 34 in 2011, helping the credit union bring its average member age slowly down to 42, versus the industry average of 47.

Fibre FCU launched a website called On Your Way that targets the under 30 crowd with the slogan, You have dreams. We show you how to get there. The site offers articles on topicssuch as how to transition from renting to buying, understanding closing costs, and ensuring your home is properlyinsured. Fibre FCU is investing heavily in luring the Gen Y crowd with its financial products, and the credit union is unconcerned about the fact that many of its younger members have not yet developed lengthy credit histories.

No credit does not equate to bad credit, Carrell says. It’s great for people to start to build their credit at a credit union first because we’ll help them maintain their credit. There’s no overnight solutionto connecting with Gen Y. It takes time and you have to keep developing your strategy and exercising it.

Missouri Credit Union ($223M, Columbia, MO) waives its closing costs, which has saved first-time homebuyers approximately $1,350 and has attracted approximately 200borrowers during the past two years. Missouri Credit Union snagged 9.1% in 12-month loan growth in the fourth quarter of 2011 and it welcomed a 59% growth in fixed first mortgages in the third quarter of 2011. CEO Harold James says Gen Y is the most crucial demographic of its first-time homebuyers.

There’s no doubt Gen Y is the group that needs mortgage loans the rest of them just need refinancing, James says. As far as purchases and homeowners who are just getting started, Gen Y is where you want to look.

Read more about how to appeal to Gen Y members in the forthcoming 4Q 2011 edition of Credit Union Strategy and Performance (CUSP).

May 12, 2014

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