It’s no secret that the new generation of consumers, millennials, are changing the way businesses and financial institutions market and sell their products.
Millennials are looking for new technology-based approaches for their purchasing behavior. With the continuous advances in technology that offer simple and fast ways to finance and purchase what they want, the traditional financial models don’t always appeal to them.
According to a survey conducted by PriceWaterhouseCoopers and the Global Financial Literacy Excellence Center at George Washington University, 42% of millennials are using alternative financing methods, such as payday loans and pawn shops, to meet their financial and credit needs.
Mobile devices and financial management are also becoming synonymous for millennials. They are increasingly using them to bank, acquire loans, and pay for goods and services. Roughly 80% of millennials own a smartphone, according to BBVA Research.
And it’s not just banking that millennials are turning to their smartphones to get information and conduct business. With applications like Talkspace that provide online and mobile therapy, telemedicine that offers virtual appointments with physicians, and robo-advisor apps such as Personal Capital, it’s no wonder millennials aren’t wooed by the traditional financial transactions.
There are even alternatives to the standard home and vehicle purchase for this technology-savvy generation. As we have seen, technology is a prime disruptor of the status quo, and there are increasingly more options for consumers who don’t want to be tied down by traditional purchasing and financing.
- Most millennials want their own car, but don’t want to be locked in to a conventional vehicle purchase or lease. There are a number of innovative and economical options to meet these needs.
- Companies like Swapalease offer short-term leases for late-model and in-demand vehicles. They match people wanting out of their current car leases with others willing to assume those leases for the balance of the lease term. The new short-term lessees generally are subject to no down payment or dealer fees and a low monthly payment. Lease sellers often offer extra financial incentives as well.
- Car rental agencies often offer month-to-month rentals for consumers who are unsure how long they need their own vehicle.
- New and used car dealers are increasingly offering cancel-anytime leases for individuals unwilling to commit to a standard lease term. Lessees usually pay a smaller down payment but a higher monthly charge when compared to a standard lease.
- Even with home purchases, there is a movement toward the less is more mentality within the millennial generation. Many millennials saw their parents struggle with their own financial debt during the recession, so they are looking to lower cost and less long-term debt options for their homes.
- Tiny houses are becoming the latest trend in cool housing. Individuals and couples without children may be best suited to living in a home of a few hundred square feet. These tiny homes can come with tiny price tags, which can allow for a purchase using funds that would usually go toward a down payment on a larger home with a large mortgage.
- Non-traditional homes reconditioned from old school buses, travel trailers, and boats have become an inexpensive way for some millennials to couple their strategy to be debt free with their desire to be environmentally friendly, as well as tap in to an opportunity to travel. With so many employment options that are now dependent upon wifi access, the low cost of living together with the adventure of the open road (or sea) can be a huge win for more adventurous types.
- Although renting continues to be the norm, even the typical landlord/renter relationship is at risk.
- The sharing economy has brought about a rise in companies like Airbnb and CouchSurfing, which allow for short-term rentals without commitment or the standard documentation of a lease.
- Boom-mates are an outgrowth of two societal challenges – a need for affordable housing for millennials coupled with an aging baby boomer generation looking to supplement their retirement incomes in order to stay in their homes. By providing rooms for rent in their empty nests, boomers are able to avoid downsizing their home while millennials can take advantage of lower-cost housing in markets they may otherwise be priced out of.
- Rent-to-own companies have stepped into the housing market as well. Companies like Trio and Home Partners of America have targeted potential homebuyers who may not meet standard mortgage requirements by providing an option to lease a home for a pre-determined amount of time and have first right to purchase at a later date. While this option may be similar to a seller-financed transaction, these companies are enticing potential buyers with an option to shop and purchase a home just like any other buyer, as long as the home meets their program requirements, no longer limiting the properties available to the rent-to-own hopeful.
All of these examples prove that this tech-savvy generation wants automation, speed, and convenience without putting themselves in a financial bind. Credit unions must invest in new technology to meet these needs and capture this group of consumers that is projected to inherit trillions of dollars over the next generation.
Learn how technology will allow you to reach a host of millennials that meet your lending criteria on their mobile devices. Our automated mobile lending platform can help you accelerate the growth of your auto loan portfolio, while staying relevant with the newest generation of car buyers.
Crystal Bullard is Business Development Manager for Financial Institutions at SWBC.
This article originally appeared on CreditUnions.com in November 2017.