Generation TBD

How do you connect with millennial members whose future is so entirely … to be determined?

One of the most difficult aspects for many credit unions in connecting with and serving today’s young membership is that there are so many different misconceptions and generalizations obscuring who these individuals are, what they want, and what type of business they can generate for their respective financial institutions.

Too often, outreach to this demographic is treated as an afterthought or a roll of the dice. But in actuality, Millennials also commonly referred to as Gen Y and subsequent generations represent the inevitable future of the credit union industry and an investment whose interest is guaranteed to compound with time as others diminish.

Addressing Common Misconceptions

Perhaps the most common error in establishing a young adult strategy is to assume that this demographic is limited merely to high school and college students with little interest and perhaps even less aptitude in taking on sophisticated financial products such as a credit card, auto loan, or mortgage.

But if you expand your definitions of Millennials/Gen Y to a more accurate scope used by many firms, including Callahan & Associates, of those ages 18-34, you begin to include many individuals who are already gainfully employed, are married and/or havechildren, and are either in their primary borrowing years or will be very soon.

Data from the 2015 Center For Financial Services Innovation studyUnderstanding and Improving Consumer Financial Health in America.

In fact, according to a 2014 report from The National Association of REALTORS, it was this younger demographic that bought the most homes last year, just edging out Gen X (at 31% versus 30%) and completely overshadowing the market activity of youngerand older boomers (at 16% and 14% respectively). Millennials also topped Gen X in auto sales for the first time in the summer of last year, according to J.D. Power and Associates, though both still lagged well behind boomers.

These individuals already represent more than 25% of the population and an estimated $200 billion in buying power. In a matter of years, not decades, they won’t just be a subsegment of your borrowers … they will be your main borrower market, having fully supplanted boomers as the backbone of financial services income.

If you expand your definitions of Millennials/Gen Y to a more accurate scope, you begin to include many individuals who are already gainfully employed, are married and/or have children, and are either in their primary borrowing years or will be very soon.

Where The Stereotypes Are Correct

While this demographic is unique in many ways, perhaps one of its biggest defining factors in terms of a financial relationship is the presence of long-term debt from student loans, typically averaging about $22,000 nationwide and in some cases extendingmuch higher.

Another is their expectation for seamless and highly functional online and mobile banking options, having been raised under the heightened and often free user experience bar set by tech behemoths like Google, Apple, Amazon, Facebook, Skype, and so manyothers.

Despite these two significant challenges, it is credit unions that must adapt to their current and potential young adult membership, not the other way around.

The major life stages of millennials by age.

For example, because the earnings and savings potential of some Millennials is not yet fully developed, credit unions should understand and anticipate that financial return from serving members 18-24 years old will in the short-term occurmostly through fee-driven strategies, say for example, debit card interchange and the reloading of prepaid cards. The one exception to this is in regards to education finance (student loans), a product that many credit unions are beginning to leverageto meet this member need and establish productive relationships early on.

Yet in many scenarios, it’s not until about age 25 that most Millennials will finally make the successful leap into more creditdriven revenue models most notably beginning with credit card and auto lending needs.

The plus side to this great divide in financial maturity is that those institutions who still strive to make contact and secure loyalty prior to that transition also gain the potential to shape their future offerings according to these members’evolving needs, and thus are more likely to hold on to those relationships well into their most valuable stages.

A last, obvious truth about Millennials is that they have no qualms about jumping between or entirely sidestepping traditional banking organizations for alternative solutions in cases where they believe the status quo does not live up to their needs orstandards.

If you plan to adapt to after the fact, when the entirety of this group has become much more desirable from an ROI perspective, you’ll face much denser competition from other financial institutions as well as greater difficulty supplanting borrowerswho have already embedded elsewhere with more adaptive, non-bank disruptors.

3 Ways To Connect Right Now

If You Don’t Know What They Want, Ask!

Whether it’s through focus groups, internships, or even direct employment, numerous credit unions are already trying to better understand and serve Millennials by going straight to the source. For example,Truity Credit Union ($741M, Bartlesville, OK) created two different monthly focus groups, one for those ages 18-24 and one for ages 13-18, and these include both members and nonmembers alike.

One of the biggest areas of opportunity revealed in these discussions was the potential draw of an affinity card relationship with the local high school. Since actually starting such a program in 2009, increased member usage of special cards featuringthe school’s mascot and other images has allowed Truity to give back more than $42,000 to this organization. That first affinity relationship was also so successful with student, parents, and the general community that the credit union has sinceexpanded the program to include a card in partnership with the local National Park, another regional point of pride.

Be Where They Are

Listerhill Credit Union’s ($674M, Sheffield, AL) onsite, student-staffed branch at the University of North Alabama called The Hill is more reminiscent of an inviting hangout than a stuffy financial institution, with charging stations, eating and study areas, and much more. However, theFinancial Gurus (think: Apple Store Geniuses) who staff the branch are still available to take care of financial needs or provide any services a standard branch could provide.

And even if you can’t connect in analog, plenty of opportunity exists in the online space as well. For example,Member One Federal Credit Union ($707M, Roanoke,VA) dropped its average membership age by two years through itsSave This, Buy That microsite. This online community focused not just on financial tips but also credit union-facilitated discussions on health, fitness, entertainment,and other well-being related topics. Its combination of accessibility on the member’s schedule, along with the ability to speak anonymously without embarrassment, proved effective where previous in-branch and in-person financial counseling effortshad been lacking.

A final example is Affinity Federal Credit Union($2.3B, Basking Ridge, NJ), which uses audio ads on the free Internet radio app Pandora to target young listeners within its footprint in a non-traditional way.

Whether you’re ready for it or not, the life journeys that younger consumers are currently undergoing will drastically transform nearly every aspect of your business model.

Let Them Build It For You

Millennials typically have a natural inclination to align themselves with mission-oriented organizations, yet a lack of understanding about the value of the cooperative model can keep them at arm’s length both as members and as potential employees.

SECU of Maryland($2.9B, Linthicum, MD) chose to address this issue by selecting candidates from top schools in its area for full-time internships focusedon project development. These help give the institution access to talented minds who might not have considered engaging with or even starting a career in the credit union system otherwise.

Each year, SECU receives about 40-80 applications for the internships and about five candidates are typically selected. Because interns receive the chance to directly influence or help create products, services, and promotions, several who have excelledin these areas ended up being hired on with the credit union for long-term, leadership-level careers.

Connex Credit Union($437M, North Haven, CT) takes a similar approach, hiring a different local college student each year to be its vice president of unbanking. Thispaid internship, complete with a 12-month term and an equally valuable title, focuses predominantly on social media, marketing, and content engagement.

Student Loans: Connecting What Is And What Could Be

Early engagement is certainly a key part of any young adult strategy, as are middle-of- the-road transitional products such as reloadable prepaid cards or credit score-building, smalldollar loans.

But because so much of the profitability of this demographic depends on how loaded up these individuals are with education-related debt and whether they are in the earlier or the latter stages of financial maturity, many organizations are left wonderingif there isn’t a way to help Millennials get stable and by extension deepen these relationships even sooner?

To address this issue long term, you need to look not just at those younger members who already have debt which can usually be managed and consolidated through credit union assistance but also at the generation that is hot on their heels(Gen Z) and is just starting to make these important financial decisions for themselves.

Another group to consider is the parents of these individuals, who oftentimes influence and shoulder (or at least help carry) the burden of cost for higher education through co-signer arrangements. In recognition of this fact, many credit unions now takean active part in providing college planning assistance to entire families within their communities.

In addition, as of 1Q 2015, nearly 700 credit unions now offer private student loans directly, including many who do so through CU Student Choice. These loan balances have grown from just over $1 billion industry-wide in 2011 to more than $3.3 billiontoday, the vast majority of which are stable and well performing.

These loans can drive real, day-one engagement from Millennials, while at the same time priming these members for a long-term relationship with the credit union. For most cooperatives, this opportunity is viewed not just as a loan but also as an investmentin a young member that is likely to become a college graduate. A long-term relationship with this demographic in particular provides real chance to help them meet their other financial needs such as a vehicle or mortgage purchase sooner as they advancein their professional careers.

Whether you’re ready for it or not, the life journeys that younger consumers are currently undergoing will drastically transform nearly every aspect of your business model. The only difference is whether or not you will jump in the passenger seatwith them now, effectively securing the role of co-traveller and trusted navigator, or arrive at the same time as most other consumer financial institutions too late.

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December 28, 2015

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