The Millennial generation’s entrance into the workforce has been dubbed one of the most disruptive and impactful in history. With different positions on optimal company culture, leadership and corporate social responsibility, Millennial ideals have clashed against some of those held in place by the Baby Boomers for decades. Both generations have strongly impacted corporate America, and they will continue to do so in the near future as the demographics of the working population continue to change.
In the same way, these two demographic segments will undoubtedly have an impact on the banking industry over the next 10 years. Millennials and Baby Boomers are the two largest generational populations ever to move through the economy, meaning significant economic changes will take place as both generations begin transitioning into the next stages of life.
Today, we’re on the edge of seeing this next generational shift occur, and financial institutions must adapt and shift their offerings to serve the changing needs of these two dominant segments.
Establishing Long-Term Relationships to Engage Baby Boomers
The Baby Boom generation is influential in the banking industry for several reasons.
1. Baby Boomers are retiring later in life, working at least two to five years longer than previous generations. This shift is a result of an increasing life expectancy, better health and rising education levels for men and women.
2. Because this generation makes up such a significant portion of the population, Baby Boomers are already placing a significant demand on the healthcare system. Healthcare costs are steadily rising, and this generation incurs costs that are roughly 85% higher than that of millennials.
3. Many Baby Boomers who were displaced by the recession elected to start their own businesses. According to data from the U.S. Small Business Administration’s Office of Advocacy, Baby Boomers make up nearly 50% of small business owners.
These three characteristics of the Baby Boomer generation are already changing the economic landscape of the United States, and financial institutions must be prepared to offer the services that these changes dictate. In order for banks to develop long-term relationships with this valuable customer base, they must begin by first understanding this generation’s needs. As this generation shifts into the next stage of life, they will demand key services related to wealth management, commercial lending and financial services related to healthcare.
In addition to offering these crucial services, banks can take some simple steps to engage this generation. Nielsen data reports that only 5% of Baby Boomers prefer to use mobile banking channels to check their balances; however, more of them are starting to prefer online channels for paying bills and checking balances.
Even still, Baby Boomers also depend heavily on in-person interactions being available at their local branch. Ensuring that the in-branch experience is convenient and positive is crucial when serving this segment. In addition, the speed and level of customer service related to complaints and technical issues tends to be significant to Baby Boomers when determining impressions of their financial services provider.
Another key focus for banks in serving this generation must be a focus on longevity. Offering customers various options for managing their assets, such as estate planning services and planning for long-term insurance policies, play a key role in ensuring that banks remain a valuable resource for Baby Boomers, not just for simple tasks, but also for advice when making complex financial decisions.
Baby Boomers certainly represent a financially successful generation. Gallup Business Journal reports that half of Baby Boomers report more than $100,000 in investable personal assets compared with 37% of generation Xers, and 14% of Millennials. And, nearly one in five Baby Boomers are even more successful, with over half a million dollars in investable assets.
In addition to this large accommodation of wealth, Baby Boomers are valuable customers for banks because they often are involved in borrowing, spending and investing their wealth. The issue, according to the same Gallup research, lies in the fact that only about one in three Baby Boomers are fully engaged with their primary bank. However, banks that begin fully engaging their Baby Boomer customers have the potential to gain much success.
Winning Millennial Trust with Digital Services
Understanding what makes the Millennial generation distinct will also have a large impact on the banking industry in the near future. A large portion of the Millennial generation prepared to enter the workforce right as the financial recession hit, resulting in a delayed entrance into the workforce for many.
As a result, Millennials are one of the first generations to have lower levels of wealth and personal income, more unemployment and more student loan debt than previous or subsequent generations. These experiences mean that this generation will have a vastly different economic experience throughout its lifetime than that of the Baby Boomer generation.
Another key distinction to note about Millennials is the high level of entrepreneurship. A report from the Kauffman Foundation shows that from 2010 to 2013, 45% of business school graduates were self-employed entrepreneurs. Millennials are far more educated than any previous generation, and they have seen more technological innovation and change, leading to an attitude that embraces and highly values innovation.
These distinct characteristics mean that the Millennial generation will demand new financial services from their banks, different than the generations before them. Millennials especially require services related to loans, whether student loans, car loans or small business loans, and services addressing personal revolving credit. And, the demand for these service interactions will be driven digitally.
The Millennial generation highly values online convenience as opposed to in-branch services. According to the American Bankers Association, internet banking became the dominant preference for consumers by 2009, and by 2014, internet and mobile banking were the preferred banking method for 41% of consumers, with branches falling behind at only 21%.
The purchasing preferences of Millennials are also vastly different from those of Baby Boomers as well. This generation grew up using Amazon, Google, Facebook and Twitter.
Digital engagement is an absolute necessity, and Millennial financial preferences reflect that. Quick decision making capabilities and faster movement of data are of the utmost importance. Banks without high-tech digital offerings may find it more difficult to fully engage this customer base.
High levels of engagement can also be difficult among the Millennial generation because they represent one of the least trusting generations in recent history and they are the most detached from traditional institutions. Data from the Pew Research Center data reflects only 19% of Millennials said that they believe most people can be trusted vs. 40% of Baby Boomers.
However, if banks can engage Millennial customers and earn their trust, they will gain access to another important customer base. Banks that view Millennials as having too few assets to represent a valuable investment are making a big error. Gallup research reveals that Millennials have a higher share of wallet with their primary bank than baby boomers.
Although Millennials may start at a lower base of wealth than generations before them, their banking needs will continue to evolve. For example, the National Association of Realtors found that buyers 35 and younger make up the largest generational group of home buyers. And Pew says that Millennials are quite upbeat about their economic status; more than 80% of the Millennials surveyed responded that they either currently have or believe that they will have enough money to maintain the lifestyle they desire.
Engaging Both for Success
Although the differences between Baby Boomers and Millennials are significant, similar economic trends among them do exist. Both represent a challenge for banks today because they must overcome considerable customer indifference in order to serve each of them. Understanding how these differences and similarities interact will be crucial to ensuring that financial institutions are equipped with the tools to provide for these large customer bases.
Financial institutions’ success in the near future will stem from addressing the changing demands of Baby Boomers and Millennials alike. A mix of investment in technology and customer care will best prepare banks to offer specialized services, from helping Millennials reduce student loan debt to assisting baby boomers in managing rising healthcare costs.
Millennials and Baby Boomers may have different characteristics, but their end goal of healthy finances is the same.