Banking and The Impending Baby Boomer Crisis

As a percent of the population, Baby Boomers will soon outstrip people under 18. When that happens, loan-to-deposit ratios will plummet and profits will drop. Financial marketers must plan now for an aging population.

When Millennials get most of marketers’ attention — followed closely by Generation Z — one might easily get the impression that Baby Boomers have become irrelevant.

To be sure, younger cohorts represent major, and long-running growth opportunities for financial institutions, particularly in areas such as digital banking, checking, credit cards, and lending products. But it would be a mistake to focus on other generations to the exclusion of Boomers.

It’s important for financial marketers to remember that this segment represents a markedly higher percentage of the population with each passing year. In fact, the U.S. Census Bureau reports that there will be 78 million people 65 years and older by 2035, compared to 76.7 million under the age of 18. That will mark the first time in U.S. history where seniors outnumber children.

Consider, too, that as of 2019 the youngest Boomers are 55, the oldest 73. This huge, still-active generation has prompted much debate about the workforce of the future, given that people are living longer, healthier, lives and working well into their late 60s.

This is a serious problem financial marketers have to get their heads around. More older consumers means less retail lending, which, in turn weighs on growth and interest rates. This all puts tremendous pressure on bank profits.

Judging how these shifts affect financial institutions was part of a study conducted by the IMF. They looked closely at Japan, the world’s third-largest economy, where a third of the population is above the age of 60. As consumers grow older and lending declines, the IMF warns that some regional banks could see their loan-to-deposit ratios fall by 40 percentage points over the next two decades.

In response to profitability pressures, banks in Japan are resorting to riskier forms of lending. They have been making more real estate loans, helping to drive up housing prices in some areas despite overall population shrinkage. Banks have also been investing more in securities in countries where economic growth is faster than Japan’s (risky in its own right), but access to such financial instruments will be challenging for community banks and credit unions in particular.

Indeed, stress tests in Japan show that market risks are increasing across the board, and that regional- and cooperative institutions face some serious vulnerabilities. This has forced regulators to step in, and the Bank of Japan has had to manipulate interest rates to help keep banking providers from sinking.

Bottom line? The problem is real, and strikes at the very core of banking — interest rates, lending, deposits, LTD and ROE ratios, etc. This means banks and credit unions must plan on marketing to society’s senior segment for at least another decade. It’s a simple mathematical reality. As Boomers roar past age 65, financial marketers must continue to allocate resources to this still important segment. In fact, banking providers may need to retool their entire business model and product lineup to accommodate an aging population.

Four Boomer Product Plays For Banks and Credit Unions

The now almost “invisible” Boomer market is not only large, but typically has significantly more assets than younger consumers. Here are five key product areas banks and credit unions may want to pursue in relation to Boomers:

1. Maturing CDs. A great time to discuss options for consolidating assets is when a customer’s certificate of deposit is maturing. Customers may be seeking guidance as to what to do next with their CDs, and it can easily lead into a broader discussion about their overall assets.

2. Investments and annuities. Baby Boomers are generally not averse to investing their assets, so a conversation on investments and annuities can be well received. The key in this instance is the target audience, as you are seeking participants you believe have already built a large nest egg.

3. Secondary accounts. While Boomers may be reluctant to move their main checking relationship, an ancillary account may be of interest. There are all kinds of reasons for opening a secondary account — to save for things like birthday and holiday gifts, vacations, or even supplemental healthcare. Any reason can be in play for another account, and it is important that banks and credit unions reach out with a compelling message.

4. Legacy planning. While not a fit for every Boomer-generation consumer, a discussion around leaving a legacy can be very successful for financial institutions that have the right capabilities. Like investments and annuities, it is critically important to mine customer data to identify an audience that would be most suited to this type of discussion. Seek those who have significant assets, as these can be great candidates for trusts and estate planning services.

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Boomer Marketing: 5 Keys to Success

In any given generational segment, there are nuances in how to best approach the consumer from a marketing perspective. Baby Boomers are no exception. Here are five keys to successfully marketing to this group.

1. Audience targeting. The primary take-away here is that not all Boomers are alike. For example, some in this generation are likely continuing to provide for adult children; others may have started a family later in life and have younger children; still others are caring for elderly parents. This dynamic would lead to much different marketing strategies for these three sub-segments, so it is critical that work be done to understand the audience.

2. Clear and relevant messaging. Convoluted or busy messaging is not a good practice in any situation, but with the Boomer audience, it is even more important to avoid poor communication. This is a group that seeks clear, straightforward information that is relevant to their situation. Do not overcomplicate things, as the points of your message will quickly be lost.

3. Simplify the experience. When dealing with Boomers, ensure that the experience is simple. Too many times the targeting is spot on, the message is perfect, the offer is good, but the execution of fulfillment is too complicated. Again, this is an audience that seeks clear direction and desires things to be easy. Take care to not add extra steps in any process.

4. Connect. Many Baby Boomers have become skeptical of marketing, having been exposed to countless messages over the years. These consumers may have been burned by taking a message at face value and then not having received what they expected. Connecting and building trust must be a key component of any bank marketing strategy. Take time to make messages genuine and reinforce with examples of how others have benefited from the offer. Emotional messaging and testimonials can also be effective with this group.

5. Utilize social media. This population is a major consumer of social media, which should drive a heightened use of this medium in any strategy. According to MediaLogic, 87% of the Boomer generation access some type of social media daily, with daily Facebook use dominating. Other traditional media, such as direct mail and email should not be discounted, but it is important to ensure that social media receives a fair share of the media mix.

Baby Boomers can be a very good target market for banks and credit unions as they look to increase revenues and profits. The demographic trends are clear, and it is now up to marketers to take the next steps to not overlook this group.

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