While the pandemic has touched all our lives, younger people have been particularly hard-hit financially. About one in three Millennials (ages 24 to 39) and members of Gen Z (ages 18 to 23) say that COVID-19 has had an extreme or very negative impact on their financial security, according to research by Age Wave and Edward D. Jones brokerage.
But this crisis is also an opportunity for these consumers. Now is the time for them to take a hard look at their saving, spending and investing patterns and establish new habits that will allow them to both weather the pandemic and build a strong foundation for the future.
Financial institutions that want to help younger generations may have to change their usual approach. These groups are tech-savvy and peer-aware; they prioritize transparency and expect hyper-personalized solutions.
Fortunately, financial professionals are coming up with innovative new tools and strategies that are well suited for them.
Here are some of the ways that financial service providers can provide much-needed support to Millennials and Gen Zers.
1. Leverage the Power of Positive Peer Comparison
Millennials came of age with social media; Facebook was a fact of life when Gen Z entered adolescence. Keeping tabs on what their peers are up to is commonplace. This habit of comparison isn’t necessarily a bad thing; peer benchmarking can be one way to spur saving or share good financial habits.
Some financial service providers are even incorporating a finance-focused feed on their apps that facilitates positive peer comparison: “If everyone else is building up a rainy day fund, I suppose I should, too.”
These groups appreciate hyper-personalized information. The newest technology for tracking spending takes this into account. Rather than sorting purchases into broad buckets (say, entertainment), users can now track their spending across nearly 500 different highly specific categories (such as streaming or gaming).
This shift doesn’t just allow for better, more granular information; it also enables useful comparisons. Users can delve into data that’s relevant to them: “How much am I spending on food delivery compared to other Bay Area residents who earn $100,000 a year?”
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2. Embrace Digital Payments
Young people were already embracing new forms of payments, with the majority of Gen Z adults using digital wallets (such as Apple Pay and Google Pay) and person-to-person digital payments (such as PayPal, Zelle and Venmo) each month.
The pandemic has accelerated this trend, according to various studies: Two-thirds of Millennials and nearly six in ten Gen Z adults say they have used digital payments more frequently since March. Moving forward, this pattern will continue as about a fifth of Millennials and Gen Z adults plan to continue using these payments more in a post-COVID-19 world and digital wallet users across the globe are expected to nearly double by 2024.
These apps and services allow users to track and review their purchases with ease. More importantly, they record spending patterns over time, enabling users to identify patterns. Along with greater transparency, though, comes heightened concerns about security. While Millennials and Gen Z embrace digital payment options with rich data-tracking capabilities, they also say that security is their top priority, ahead of fees, speed and user experience.
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3. Empower Them to Address Debt
The pandemic has been particularly challenging for young people in part because many of them were coping with debt even before the current crisis.
Student loan debt has doubled since the 1999-2000 school year, when the oldest Millennials were entering college. It’s estimated that borrowers aged 25 to 34 have nearly half a trillion dollars in outstanding student loans. Millennials and Gen Z also have higher rates of unpaid medical debt, checking account overdrafts and late mortgage payments than older cohorts. With the pandemic providing extra financial pressure, it’s more important than ever for young people to manage their financial obligations so they will be able to meet their future goals.
Financial tools that incorporate personalized information can help users establish short- and long-term goals, such as setting up an emergency fund or saving for a first home, while also keeping on top of their car, student loan and credit card payments. Users can project their income into the future and see how changes might impact their ability to pay their bills or meet their goals. These new tools go beyond simple, one-size-fits-all budget calculators — they’re tailored to individuals’ specific circumstances.
Ultimately, rather than telling younger users what steps to take, these tools empower them to proactively identify their financial patterns and take charge of their future.