Are Gen Zers the Most Dangerous Clients for Banks?

From racking up credit card debt to engaging in first party fraud, Gen Zers present as tricky customers for banks. But developing marketing strategies that speak to their unique pain points will help bankers foster a more harmonious relationship with these younger customers.

Gen Zers could be the riskiest clients for financial institutions right now. From racking up credit card debt to pay for a vacation to engaging in first party fraud, many banks don’t see Zoomers as stable long-term clients.

Gen Zers are using credit more often than millennials did during early adulthood, according to research from TransUnion. Gen Z borrowers are opening more credit lines and have both higher debt levels and delinquency rates compared to millennials at the same age, the report found. They’re also using bank cards and taking out auto loans more frequently than millennials did.

While Gen Zers may be riskier clients, banks that ignore them are missing out on a key long-term business opportunity. Young women, for example, are getting richer. Over the next 20 years, $80 trillion will change hands as older generations leave money to their children — and millennial and Generation Z women are expected to benefit. Millennials already make up the majority of the American workforce, with Gen Z following quickly behind.

“At the end of the day, a lot of young people are going to inherit an enormous amount of wealth over time passed down from their family members,” says David Donovan, executive vice president of Financial Services in the America’s for Publicis Sapient. “I don’t know if banks are motivated to engage with Gen Zers, they’re motivated by the highest margin business. But there is an opportunity.”

The problem is that many community banks and credit unions aren’t making an effort to meet the unique needs of Gen Z customers. Gen Zers, who came of age during a turbulent time in the American economy, want to spend their money with businesses that understand them. Developing marketing strategies that speak to the unique pain points of this generation will not only create a more symbiotic relationship between banks and Gen Zers — but will also help to generate more business in the long-term.

Gen Zers Think They are Financially Behind Other Generations

Gen Zer’s reliance on credit is related to the challenges they faced entering young adulthood during a global pandemic and economic recession, says Michele Raneri, vice president and head of research at TransUnion.

75% of Gen Zers in the survey said they had their finances negatively impacted by the pandemic-induced recession, while just 60% of millennials said the 2008 global financial crisis negatively impacted them.

chart showing how young americans feel left behind by the economy

Gen Zers feel that they’re behind financially, Raneri says. Many express concerns about their ability to purchase a home or paying off high credit card balances. “I think that they rely more on credit because they are still struggling to get their wages to catch up with their spending,” she says.

 “One of the biggest pain points of Gen Z and millennials is they feel robbed of the opportunities that their parents had. They are generally at a disadvantage and they don’t feel like most brands understand that.”

— Katya Varbanova

The lingering impact of the COVID-19 pandemic has left Gen Zers feeling disillusioned about the economy. Many blame the economy for making it harder to get by, according to a recent BankRate report. Thirty-eight percent of Gen Z and millennials say they have it harder than their parents did, compared to 17% who said they have it easier, the report found.

“Millennials and Gen Z are looking for banks that get them,” says Katya Varbanova, a brand marketing consultant. “One of the biggest pain points of Gen Z and millennials is they feel robbed of the opportunities that their parents had. They are generally at a disadvantage and they don’t feel like most brands understand that.”

Dig deeper into generational habits:

Gen Zers Want More Financial Education

Gen Z has the lowest financial confidence of all generations, according to a WalletHub survey. Roughly 57% of Gen Zers think a savings account is the best way to invest your money, compared to 46% of Baby Boomers who said stocks are a better option, the survey found. Additionally, more than 34% of Gen Z respondents say their parents did not set a good example financially.

“Education is really important,” Donovan says. “When I talk to young people they always want information.”

Community banks and credit unions can fill gaps by offering local opportunities for financial education. Gen Zers are looking for information on how to apply for loans, and get credit cards, Raneri says. Banks that want to reach more Gen Zers should invest in developing a more robust presence on social media. Bankers can also seek partnerships with nonprofits and organizations that support the needs of the local community.

“Meet them where they are,” she says. “It’s through clever content that means something to people.”

Gen Zers Seek Digital Experiences

Gen Zers were raised with technology and have little patience for cumbersome processes. Banks that make it challenging to open or manage accounts online stand to lose Gen Z customers to big competitors. Indeed, 83% of Gen Zers say they have been frustrated by a bank process, according to a Publicis Sapient report.

Community banks and credit unions are already making big moves when it comes to updating their technology. The COVID-19 pandemic accelerated a shift toward digital platforms and online banking that was already underway. A significant number (71%) of customers report a preference for managing their bank account online, according to BankRate data.

When it comes to online banking, Gen Zers tend to prefer personalization and are looking for easy-to-use mobile applications with robust features. Fintechs like Robinhood have done a good job engaging Gen Zers because of how easy it is to open and manage an account, Donovan says.

“To onboard into a bank, it shouldn’t be onerous. It should be simple and easy to do,” he says.

Gen Zers Care about Social Responsibility

Gen Zers want to spend their money with businesses that demonstrate that they care about important issues like mental health, racial and gender equity, LGBTQ+ rights and the environment. For example, 53% of Gen Zers want brands where they shop to support mental health awareness, according to a survey from ICSC and Big Village.

“How do we make the world more equitable, less stressful, more focused on mental health, more focus on open mindedness,” says Varbanova. “The brands that I find that Gen Z really resonates with, are the ones that are openly coming out and saying we are giving back to the community in this way.”

Community banks and credit unions that can showcase how they are working to better support the community are more likely to resonate with Gen Zers.

“It starts with understanding the Gen Z values and being able to communicate that with their overall brand messaging, to showcase that you understand them,” Varbanova says.

Caroline Hroncich is a freelance business journalist based in New York. She writes about workplace trends, HR, personal finance, banking, and more. Her work has appeared in MarketWatch, Business Insider, Employee Benefit News, the Society for Human Resource Management, and Cannabis Wire.

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