Credit unions should be keenly aware of trends involving Generation Y, the group of young adults typically defined by credit unions as those ages 18 to 25 that represent 9% of credit unions’ total membership, according to CUNA’s 2011-2012 National Member Survey.
That’s because Gen Y because it has the largest population in U.S. history with 77 million people—several million more than the baby boomer generation. And it contains the most new mothers with 68% of all births coming from Gen Y moms, says Maya Bourdeau, managing partner with the research firm Attune.
Also, members of Gen Y are trendsetters, Bourdeau says. Baby boomers emulate their children, which creates a “trickle up” effect. About two-thirds of Gen X women identified Gen Y women as trend leaders.
Gen Y represents future loan demand for credit unions, Bourdeau says. It has four times the national average in student loans and twice the national average in auto loans. During the next 10 years, Gen Y will purchase more than 40% of vehicles sold in the U.S.
Almost 50% of Gen Y will be purchasing new cars in the next two years.
Gen Y can be profitable in ways previous generations weren’t, Bourdeau adds. They’re cheaper to serve than older members because they rarely call customer service or visit branches. And Gen Y is loyal, making member retention less of an issue.
Other Gen Y trends:
►Convenience is king. Bourdeau says Gen Y cares about technology and convenience over customer service.
Gen Y consumers report the primary driver of choosing a financial product or service is ease of use and convenience, followed by the ability of a payment option to provide capabilities for controlling spending.
Bourdeau pointed to PNC Financial Services Group’s Virtual Wallet as an example—a product that was opening 6,000 accounts per week in June 2011. The average age of those accountholders was between the ages 18 and 34.
It was successful because it helped a learning audience learn—by answering questions such as “can I afford it?” and “how will this purchase affect my budget goals?”—and by offering the right payment method.
►Gen Y is moving away from credit cards toward prepaid cards. Today’s most visible prepaid cards tend to carry the logo of either the major card networks or third-party vendors.
More than $409 billion was uploaded onto prepaid debit cards in 2011.
►About 21% of Gen Y members don’t have checking accounts, compared with 12% for all generations. Credit unions need to reach these young consumers at the earliest possible stage as nonbank prepaid products begin to become a competitive threat.
Gen Y is moving toward nontraditional mobile banking providers, such as Google Wallet, Dwolla, and ISIS. The line between banking and payment systems is blurring.
Nearly 80% of mobile banking users are between the ages of 18 and 44, and they’re typically Asian, Latino, or African-American.
Innovate & ‘market trust’
“Credit unions must continue to innovate and market trust as a differentiator,” says Alex Matjanec, co-founder of mybanktracker.com.
“I’m concerned that credit unions are losing the innovation race,” Matjanec said. “About 92% of the top 25 banks now offer mobile banking, and 37% of customers at these giant banks used mobile banking in the last 90 days. But only 14% of credit union members used mobile banking in the last 90 days.”
Matjanec says Gen Y consumers have access to anything—mostly free—and they equate banks with fees. They entered independence near the end of the recession, and they’ve learned not to trust the financial system.
Gen Y is financially stable, Matjanec adds. He said this generation has average outstanding debt of $34,735, with most of it tied up in student loans and auto loans.
Gen Y has an average credit score of 672 on the VantageScore scale. Only 54% of those ages 18 to 24 are employed full time, with financial independence kicking in around age 25.
This age group shows a distinct trend toward financial conservatism and debt-avoidance.
“Banks are taking advantage of an opportunity to use prepaid cards as building blocks to help young consumers transition to a deeper and more profitable banking relationship, Matjanec says. “Banks currently support 27% of all prepaid cards and products compared with 37% of prepaid products bought at a merchant or retailer location.”