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09/06/2017

Doggedly Pursuing Millennials: Banks Need to Hone their Financial Advice Chops

Trevor Rasmussen September 6th, 2017
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Onboard & Engage

Most pets know when you don’t like them. They can sense your antipathy, but pets handle this dislike differently. I’ve found that cats, quickly dismiss people who don’t like them. Cats will quickly turn off the charm and do what they can to bug you. For example, my best friends cat routinely sneaks up behind me on the couch and rubs its tail across my face when I am not paying attention. I am convinced she knows exactly what she is doing and why she is doing it: she has dismissed me.

Dogs, on the other hand, being the yes-men they are, will do everything their little canine minds can think of to get you to change your mind about them. They’ll fawn at your feet, attempt to climb in your lap, lick whatever portion of your body they can reach, bat their big brown eyes, and bring you a toy to play with. The young pup knows something the dog-hater does not: it has a lot to contribute and it desperately wants you to know it!

I see many financial institutions taking the cat-approach with Millennials (and other non-prime customer segments). They see an audience that is uninterested and rather than helping them to see the value they bring, they just dismiss them. While it’s your prerogative to take this approach, its likely a dangerous one for your financial institution.

Banks would do well to mimic that kind of doggedness (see what I did there?) the canine has in their ever-evolving relationships with millennial customers. Plenty of research indicates the average millennial views banks with roughly the same level of antipathy a non-dog lover would feel if a large, wet and slobbering pooch climbed into bed with them. According to the Millennial Disruption Index published by Scratch, a Viacom Media network company, millennials:

  • Don’t see any difference between banks (53 percent).
  • Are more open to switching banks (one in three would be willing to bail within the next 90 days).
  • Believe they won’t need a bank at all within the next five years (33 percent).
  • Would rather sit in a dentist’s chair than listen to what banks have to say (71 percent).

And if those passive-aggressive tidbits don’t leave you feeling energized, here’s one more that might: American Banker recently cited a Center for Generational Kinetics report that says about 5 million millennials don’t even have a checking account, largely because they don’t trust banks with their money. Ouch.

PayPal founder Max Levchin, now the CEO of a new alternative lender, Affirm, summed up millennials’ attitudes about banks in a USA Today interview: “A lot of younger people really just dislike big banks or any banks really. They watched their parents suffer through a reduction in credit limit, or a mortgage that collapsed on them. They basically had a front-row seat during their formative years during the 2008 financial crisis. ”

Barking up the wrong tree

Financial institutions would be wrong to interpret millennials’ general distrust of traditional financial institutions as evidence Generation Y doesn’t care about money. In fact, multiple studies suggest millennials are even more concerned with good financial management than their parents’ generation.

“Cautious (some would say excessively so) and remarkably responsible, Millennials are diligent in paying down debt, careful with credit cards and dedicated to accumulating savings,” Facebook, the definitive social media voice of the generation, says in its report Millennials + money: The unfiltered journey.

Yet for every study that says millennials want to manage their finances well, you can find opposing information that says they’re not doing that. They are largely ignorant of factors traditionally considered indicative of good financial management; 73 percent of millennials don’t know their own net worth, and 40 percent don’t have any retirement savings, according to a poll by Personal Capital. Meanwhile, a PwC study found many millennials making financially risky decisions such as dipping into retirement savings to pay for non-retirement expenses (50 percent) and paying for monthly necessities with credit cards (30 percent).

How can we account for the disconnect between millennials’ financially conservative attitudes and what they’re actually doing? Again, Facebook offers some insight.

“Millennials are redefining financial success,” the social media giant says in its report. “(They) have two main financial priorities: paying down debt (43 percent) and saving for the future (38 percent).”

“But they stand at a crossroads,” Facebook notes. “While most Millennials feel there is more they should be doing with their money, many just don’t know what to do. And half of Millennials say they have no one they trust for financial guidance.”

Faithful companions

The youngest millennials are beginning to age into the workforce, and multiple economic factors may make their financial futures even more challenging than those faced by older millennials. The entire generation needs financial advice they can trust, yet few seek financial guidance from professionals. In fact, while millennials consider paying down debt and saving for the future to be priorities, just 12 percent have asked for professional debt-management advice and only 27 percent have sought professional advice on savings and investments within the last five years, PwC has reported.

Banks have an opportunity to fill the financial advice void for millennials, but like the pooch playing to a dog-averse house guest, they’ll have to work for it. As you likely remember, most Millennials can’t tell one FI from another and don’t see you bringing value. To reach them, you’ll need to find new ways to engage millennials, demonstrate just how a financial institution can fit into their lives, and illustrate all banks have to offer beyond a place to park their money. Filling this void should be a driving objective in banks’ digital transformation.

Banks can transform themselves into faithful companions on millennials’ financial journeys by:

  • Accepting and facilitating millennials’ priorities. When a dog is trying to win over a non-dog lover, he doesn’t try to entice the person to follow him; he climbs right up in their lap! Sure, you would love to convince your millennial customers that saving for retirement should be a top priority, but this generation is deeply in debt. They want out of it as quickly as possible. For many, this means foregoing retirement savings until they feel their debt is more manageable. Rather than try to force baby boomer priorities on millennials by insisting they save a greater proportion of their disposable income than they’re comfortable with, banks should find ways to help them focus their resources on debt reduction.
  • Find the right “toys.” Don’t like the slobber-covered ball the dog brings you to play with? No problem! He’ll bring you a well-chewed Kong, a punctured squeaky toy or a stuffed monkey that’s had all the filling removed. He’ll keep going until he finds just the right one to win you over. Millennials have a high affinity for technology and banks need to find the tech tools and channels that will win them over.

Additionally, Facebook offers some insight into what they feel millennials want from their financial institutions:

  • Make it easy for them to use the tools you offer. For example, checking accounts with no minimum deposits; many millennials live paycheck-to-paycheck and can’t afford to let $1,000 sit unused in an account from month-to-month.
  • Support millennials in managing multiple financial priorities. Of course you want to encourage them to save, but show them how they can do that while still paying down debt.
  • Rethink credit products. Millennials are goal-oriented and speed-motivated. They want help in reaching their priorities faster, including building credit and reducing debt. Facebook suggests turning credit into a “life hack.”
  • Communicate to them in a way that makes sense to them. Don’t treat all people the same. Evolve your marketing to target Millennials and bring them the content they want, in the channels they want, when they want it.
  • Leverage financial planning services to help enrich relationships between FIs and millennial customers.
  • Make them feel that you understand them. Less than one-third of the millennials surveyed by Facebook feel their financial institutions understand them. It’s not enough to just understand your millennial customers, you have to make them realize you know who they are and what they want. Do this by delivering advice, products, and services that help them meet their immediate priorities as well as long-term goals.
  • Find a way to reward them. Rewards can be expensive but you can’t ignore groups like Millennials (and other non-prime segments) just because they aren’t your ideal customer (yet).

The folks at Facebook perfectly summarize the polar shift that needs to occur in the banking industry in order to fill the financial-advice void millennials face:

“To connect with Millennials, financial services will have to take a new approach. Millennials want to entrust their money to a true partner that shares their values and sees them succeeding together as they amass savings and unlock their greatest earning potential.”