Gen Y: The Consumers in the Mirror are Closer Than They AppearKelty Wallace
September 27, 2011 — 1,245 views
Generation Y, a term coined in 1993 in Maxim magazine, refers to the generation born between the early 1980s and mid 1990s. Nearly 55 million Americans today fall into this category, and these numbers are expected to rise over the next 20 years as the children of the Baby Boomers come of age. While coming of age, this generation has experienced two wars, an economic recession, various acts of terrorism, and unprecedented natural disasters. They were raised to be conscious of society and their surrounding environment and have proven to embrace civic duties and responsibilities more than the generation before them. They believe that marriage is part of the American Dream, focus on personal pursuits rather than career ambitions, and have higher self-confidence than their parents.
What does this mean for financial institutions? Because Gen Y has experienced more financial turmoil than the generation before, they are more financially -conscious and responsible. At the same time, they are more educated, but there are fewer jobs to be found. In fact, it is estimated that 60% of all college seniors will move home after graduation. For financial institutions, capturing the business of this generation can be challenging. These young consumers are more likely to use cash or debit rather than credit or loans and are overall less likely to use traditional financial services than previous generations. As a consequence, they have very little, or no information at all, in their traditional credit files. This poses another hurdle for banks. They know these consumers can be financially responsible, but there is no way, through traditional credit bureaus, to see evidence of this responsibility.
Banks have found a way to appeal to this generation while addressing the complications that come with beginning the relationship. They are starting to incorporate more products that are focused on existing funds--prepaid debit cards, checking accounts, deposit accounts, and savings accounts. These kinds of demand deposit accounts are heavily used by this generation and appeal to the consumers' focus on cash products and saving.
These products can also be used as an accurate credit-risk indicator when the consumers decide to use lines of credit. While they may not have pre-existing information available from a credit bureau, the FI will have internal information they have collected on the customer. They can also use alternative data such as: records from rental histories, phone bills, utility payments, and other financial records. When banks can access this information, they will be able to offer more relevant terms to consumers than if they had relied on non-existent traditional data (where they could only assume the consumer was a high credit risk).
When banks are able to make accurate assessments of this demographic, they can offer better terms for both demand deposit and credit products. Because banks are specifically focused on helping these young consumers, members of Gen Y will start to build trust and loyalty towards financial institutions.
By carefully and accurately assessing this generation, banks have the potential to capture a new segment of consumers. While Gen Y may look risky based on traditional credit data, by incorporating other data sources, banks will be able to offer products that are matched directly to how responsible the consumer actually is, without increasing the risk to the institution. This will lead to increased account opening, higher customer loyalty, and increased consumer trust in banking.
Kelty Wallace is a SEO specialist and copywriter for Zoot Enterprises in Bozeman, Montana.