Are Millennials Worth the Effort?

By Kevin Tynan

Millennials are the biggest generation in the history of the U.S. with twice as many college graduates than the Baby Boomers of 1970 but don’t automatically assume they are ideal prospects for your bank or credit union.

 Almost a quarter (23%) say they carry less than $5 in cash seven days a week, according to a survey conducted by the ICBA.

About four-in-ten report that they are overwhelmed by debt obligations, primarily paying off credit cards and student loans. A majority report they are living paycheck-to-paycheck, says a Wells Fargo Millennial Survey.

Restaurant chains, luxury brands, clothing retailers, and travel firms are scrambling for a piece of a generation generally viewed as having more buying power than any in recent memory.

By dangling the latest mobile technology as a carrot, big banks are winning over more than two thirds of Millennials according to a 2014 Harris survey.

Community banks, however, aren’t faring nearly as well—and that may be a blessing.

Like most segments based on age, only certain prospects are attractive. Before cranking up a millennial effort, CEOs and marketers must carefully consider whether an acquisition program is worthwhile.

Consumer behaviors and attitudes don’t abruptly develop and end with specific birthdays. Each person marches to their own drumbeat, taking their own time to form opinions and establish behaviors. Parents would like children to start making sensible decisions when they turn 21—but that’s not the way it works.  Millennials tend to be as diverse, affluent, cynical, optimistic, ethical, thrifty and altruistic as the parents who raised them.  Their only commonalities are shared experiences which don’t result in uniform attitudes and behaviors.

We can speculate about the impact of 9/11, the wars in Afghanistan and Iraq, and the Great Recession of 2008 but it’s probably not powerful enough to fuel a retail banking campaign.

Banks have valid reasons for acquiring young customers—to counter natural attrition, grow market share, cultivate advocates or simply increase profits—but those reasons must be tempered with realistic expectations. All Millennials are not ideal targets for community banks.

Nearly two-thirds make less than $50,000 a year in household income; 23% spend more than they make; and 31% have unpaid medical debts according to a 2012 study.

Merrill Edge says Gen. Y most had to pay for groceries with credit card, more than a quarter missed a bill and 50% said they’d be embarrassed if colleagues new their true finances. They switch banks at twice the rate of older customers, are more interested in technology than service, see little difference between institutions, and a third believe they’ll live bank-free in the future, according to Accenture.

Since they are just starting their careers, you might expect them to be good credit prospects. In fact, sixty-three percent of those age 18 to 29 don’t have a credit card, according to a survey commissioned by Bankrate and compiled by Princeton Survey Research Associates International.

But that doesn’t mean they are good credit risks either. According to Experian, the average VantageScore for millennials is 628, which lenders largely consider subprime. Baby boomers and Generation Xers have an average VantageScore of 700 and 653, respectively.

Bankers should avoid viewing Millennials as a monolithic group. Even a majority of Millennials don’t think the term describes them. Consider parsing them into subgroups such as Affluent, Homebuyers, Entrepreneurs and Savers. But the smarter move may be to remove the age bracket blinders entirely and target the best prospects for specific products.

Nielsen, Raddon and other vendors can pinpoint consumer segments with the resources and propensity to purchase specific financial products. These vendors divide the population into dozens of lifestyles and each lifestyle member exhibits similar attitudes and needs towards money. By appending this lifestyle information to your customer database, you can quickly determine which lifestyles are attracted to your institution and to particular products. Purchase email or address lists of matching prospects in your area and reach them through the most appropriate channels.

I say leave Millennials to the big banks; focus on profitable prospects.

Kevin Tynan is senior vice president marketing at Liberty Bank for Savings in Chicago.