With COVID-19 all generations have had a rude awakening to the fragility of the human condition and their wallets. But for Generation Z the shift from prosperity to both physical and economic turmoil has been wrenching, at least in the short term.
“This is the generation-defining moment for Gen Z. What 9/11 was for Millennials, the COVID-19 pandemic will be for Gen Z,” says Jason Dorsey, President of the Center for Generational Kinetics and an expert on Millennials and Gen Z.
“We’re seeing a bit of a reset in terms of how Gen Z and also Millennials value material possessions, given how tough things are. They are now starting to think about what they consider important in tough economic times and what they can do without,” adds Dorsey. “We’re not sure of the long-term ramifications of this yet. But it is a conversation that comes up in our research interviews with them. Coronavirus has caused many of them to rethink how they spend their money and what their financial goals are.”
While massive unemployment reports are rattling everyone, “they are especially scary for those just starting out,” says Anuj Nayar, Vice-President and U.S. Financial Health Officer at Lending Club, which recently agreed to acquire Radius Bank. “It’s reminiscent from an economic point of view of when the older Millennials graduated into the middle of the Great Recession.” Some think the current environment will be detrimental to Gen Z’s entire financial life, Nayar observes.
“The coronavirus is definitely going to change Gen Z’s perspective. They were focused on saving money and having a great career,” says Ash Exantus, Director of Financial Education at BankMobile. “This generation will take emergency savings even more seriously and they will re-evaluate how they make money. They are realizing that they can’t rely on government, that they have to depend on their own efforts.”
As labor markets begin to recover, Dorsey expects Gen Zers to set out to have a full-time job and a side-gig as their own normal. They won’t trust in any one source of income.
Banking’s Place in Gen Z’s Lives Comes to a Tipping Point
In a sense the coronavirus environment is a generation-defining moment for banks and credit unions, too. The actions they take towards and for Generation Z — a key part of the industry’s future consumer base — and also to their parents and other family members will be noted and remembered.
Get it right now, and it will stand your institution in good stead. Screw up now and the bad taste left in Gen Z’s mouths will stay — possibly for good.
“A big part of the 18-24 year-old demographic is right on the cusp of picking the financial institutions that they’re going to want to stay with, versus the one or two that they were introduced to by their family,” says Dorsey.
“Don’t overlook the retail customer of 18-24 who is extremely scared and looking for somebody they can count on.”
— Jason Dorsey, Center for Generational Kinetics
The rush among many financial institutions to implement federal business-oriented efforts like the Paycheck Protection Program is understandable, but Dorsey cautions against letting that become all-consuming.
“Don’t overlook the retail customer of 18-24 who is extremely scared and looking for somebody they can count on,” Dorsey continues. “They are building their trust with banks and credit unions right now. This is the time to let them know you’re there for them, not just for entrepreneurs, business owners or large account holders.”
It’s About Both Impact and ‘Optics.’ Both Millennials and Gen Zers are watching how brands, including financial institutions, treat consumers, businesses and employees. They’ll jeer poor treatment — often aggressively on social media — and they will also call out apparent hypocrisy, where a brand fails to deliver on glib promises made.
Any financial marketer who has not been monitoring social media should be. House-bound social posters have been getting acidic, even profane, often with only moderate provocation.
One plus that traditional financial institutions have in this environment and with this demographic group is longevity. Much has been made, beforehand and during the COVID-19 period, about the perceived superiority of fintech options.
“[Fintechs] may have had a head start in terms of user interface and user experience,” says Dorsey, “but they never expected consumers to actually show up and meet them. In times of fear and uncertainty, people are still going back to the bank where they have had a relationship, even if that’s a big bank, because that’s the one they know and have worked with for the longest period of time.”
That said, Dorsey adds something critical to future messaging by banks and credit unions: The industry thinks in terms of traditional institutions versus fintechs and neobanking. That boundary doesn’t exist in the heads of Gen Z.
“Gen Z doesn’t differentiate,” says Dorsey, “because in their lifetimes, banks, fintechs and neobanks have all always existed.”
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Gen Z: First to Get Laid Off
While the unemployment filings made in recent weeks have been chilling for everyone, Gen Zers already in the workforce full- or part-time have been hit disproportionately hard. A Harris Poll survey taken in March 2020 found that 29% of workers between 18-24 have lost hours or entire jobs versus 11% of workers 45-64.
The Pew Research Center reports that out of all generations polled in late March 18-29 year olds, which straddles older Gen Z and younger Millennials, are the most likely to say that someone in their household has been laid off or lost their job (29%) or has had to take a pay cut or lost working hours (39%).
“Gen Zers in the workforce have disproportionally been in the service economy or in entry-level jobs,” says Dorsey. “Those positions have been hit very, very hard. So you have 18-24 year-olds who had been benefiting from a really strong economy and very low unemployment suddenly be furloughed out of jobs and often with very little financial backstop.”
This generation, though it has demonstrated a regard for savings that Millennials didn’t have as much, has lacked the time for accumulating much of a reserve, Dorsey says. “They don’t have a lot of savings and they don’t have a retirement plan that they can tap.”
They and the college-age Gen Zers may feel the impact of the economic downturn for years, projects Dorsey.
Even younger Gen Zers have felt the impact of the COVID-19 slowdowns and shutdowns. However, Dorsey suggests that while these middle-schoolers and high-schoolers have seen their world turned upside down, “they also have the most runway ahead to enable them to learn from this experience and to actually benefit from in in the long-term.” For example, as the coronavirus forced they and their families into their homes and put their school courses online, they have been learning how to be educated remotely and how to work collaboratively without physical contact.
“They’re going to come out of this with a different skillset and a different mindset,” and with the time to make the adjustment, says Dorsey. By contrast, “older Gen Zers are really crashing into this very difficult time at a pivotal point in their young adulthood.”
8 Things Your Institution Can Do to Help Gen Z … And Itself
Beginning in March, financial institutions began taking their own steps to help consumers, offering payment deferrals, fee waivers and more. This has been going on around the world. Interestingly, an international poll by Global Web Index found that Gen Zers expressed the greatest approval among the generations of how financial institutions have handled the coronavirus pandemic, with 73% strongly (29%) or somewhat (44%) approving.
So that’s a start.
Here are 8 things banks and credit unions can do to assist Gen Z customers and members.
1. Be empathetic and responsive, overall.
This generation had the savings habit, learned in the wake of older generations’ troubles with the Great Recession. The thing about rainy day savings is, sometimes it doesn’t just rain, it monsoons.
“For many Gen Zers, and also for Millennials, this economy will wipe out whatever savings they had,” says Dorsey. “Rebuilding savings is going to be their North Star.”
Evaluate messaging through this filter, because it will color not only the deposit side of their banking relationships but also any use of credit.
“They saw their parents struggle,” says Dorsey, “but now they are in it themselves. That’s truly cementing their views around savings and saving money.”
2. Help them with their Job #1, tracking spending.
As troubling as today’s conditions are, consumers and their financial providers are in a temporary zone of intended cooperation. Gen Z especially will be pinching pennies to try to maximize building savings. They will be keenly aware of where their money is going.
“Gen Z will be keenly aware of where their money is going.”
Lending Club’s Nayar suggests that banks and credit unions look to the likes of the Trim app for inspiration. Trim automates consumer cost cutting, monitoring spending and re-negotiating cable, internet, phone and medical bills, cancelling unused subscriptions, and more. (Trim takes a third of the savings for the first year.) Some bank apps and virtual assistants do this, among them Bank of America’s Erica and Capital One’s Eno for sure.
3. Think like a Gen Zer when you design products and devise marketing.
Take the matter of cars. Yes, in many urban markets Gen Zers prefer to go with ride-sharing or vehicle-sharing options over buying. But in many other areas owning a car remains important, if only in order to go to the job one hopefully still has.
“What ‘four-door cars’ can your institution invent?”
Think about that shopping service that’s been bringing you groceries for the last month or so. The professional shopper working for Instacart or Shipt didn’t come to your door by Uber or Lyft or by mass transit. They came in someone’s personal vehicle, likely bought on credit.
Likely Gen Zers won’t be buying new. They will be purchasing used cars and they will want to own something that will last a good long time. In some ways, they have already been re-inventing thrift. Dorsey notes that his research found that Gen Zers prefer four-door cars over two-door cars because those are better for driving groups of friends around.
What “four-door cars” can your institution invent?
4. Don’t be in a hurry pushing credit cards on Gen Z.
While pre-COVID-19 trends indicated that Gen Z’s aversion to credit cards was cracking, that ice may be refreezing.
“You’ll do Gen Z no good by putting them on the hamster wheel of credit card debt.”
— Anuj Nayar, Lending Club
Some Gen Zers may use card credit to tide them over a rough spot currently, suggests Ash Exantus of BankMobile. However, this won’t last long.
Nayar acknowledges that even the credit averse need to build up credit for future needs, but says that credit cards are not what this generation wants.
“You’ll do them no good by putting them on the hamster wheel of credit card debt,” says Nayar. One of Lending Club’s core markets is debt consolidation. Even today, as the Fed continues to push rates down to zero, credit card rates remain in high double digits.
5. Embrace the gig economy.
As one of our interviewees said, no joking implied, right now some out-of-work Gen Zers aspire to deliver for Grubhub or some other gig-based company. Companies like those are hiring.
Financial institutions have a mixed record banking contractors in general and have done very little for the gig economy, with a handful of exceptions such as the app called Indi introduced last year by PNC Bank’s Numo lab.
With more Gen Zers heading towards such jobs and their desire to save well ingrained, this is a classic sell-people-what-they-need opportunity.
6. Consider alternative credit data going forward.
There’s no delicate way to put it. In coming months, possibly years, credit performance will be UGLY. As people find new ways to bring in income, such as gig jobs, some will be good credit candidates even though their profiles won’t look strong by traditional standards.
Nayar says Gen Z is going to need evaluations that are more enlightened than traditional credit scores. Lending Club itself evaluates applicants by over 100 different variables, many of them fitting the model of “alternative credit data.” A key measure is cash flow, he says, rather than traditional income.
In terms of credit, “it will be a tough time for everybody, not just Gen Z,” says Nayar.
7. Realize that mobile service is not enough. Video interactions will reign.
Generation Z spans people from grade-school to post-college and one thing they are all currently sharing is social isolation abetted by technology that enables them to attend class, work and see loved ones and friends via video services like FaceTime, Zoom and WebEx.
While health concerns will hopefully subside, having discovered an alternative to commuting or even leaving one’s house, Dorsey suggests that many in Gen Z will question returning to face-to-face interactions. That includes meetings for banking advice, loan closings and more.
“Financial institutions have been fixated on making everything mobile friendly,” says Dorsey. “But now you’re going to have a generation that wants to be deeply engaged via technology. They will be accustomed to it because of today’s adaptations. So they won’t feel that they need to ‘show up’ anymore.”
8. Encourage Gen Z to open retirement accounts.
Yes, you read that correctly. Nayar believes financial institutions should be urging Gen Z to start IRAs as soon as possible.
He says this is one of the best bets in financial services.
“The compound interest will be amazing,” he explains, and for a generation increasingly focused on security and surety, it’s a natural.