The Effect of Millennials on the Financial Industry
Millennials have dramatically changed the course of many traditional industries. They demand exceptional customer experiences, fast and easy service, affordable solutions, and prefer brands that put the consumer in the driver’s seat. Most industries have responded well to this – banks have scrambled to buy up fintechs to meet their digital needs; retailers have pushed for multi-channel personalization to satisfy their taste for online shopping; and hardware manufacturers continue to push the boundaries for sleeker, cleaner, and minimalist designs.
For the financial industry, meeting millennials’ high expectations must be carefully balanced with sensitivity to their money mindset. Millennials are eager to achieve greater financial wellness while being informed and in control of how their investments are managed.
Millennials’ Money Mindset
Born between 1981 and 2000, millennials are the largest generation employed in the workforce according to Pew Center Research, and possibly the most digitally savvy investing group of our time.
This demographic views financial matters a lot differently than previous generations. Having lived through several economic crashes – the dot com bust, the Great Recession, and a current pandemic – millennials have grown cautious of traditional financial institutions and prefer technology-based interactions that are convenient, relatable, and user-friendly. According to research from Brandcap, big banks ranked low in “relatability” among consumers – a concept that denotes trust and accessibility. Meanwhile, financial brands like Robinhood, Venmo, and Zelle, to name a few, are popular with this demographic.
The events of 2020 have only exacerbated millennials’ worry about their financial futures. This demographic values stability and demands financial guidance to get there. Only problem is traditional wealth management services tend to target wealthier, older clients and have high, hidden fees that millennials cannot afford.
This is why financial organizations like Ellevest, Financial Gym, and Robinhood are gaining traction with the millennial workforce. They cater to the new crop of “wealth seekers” who want to get ahead financially, control their investments, and gain a strong financial footing without the exorbitant fees or in-person interactions.
A Step Beyond Savings
By now millennials know the importance of investing in a 401(k), having three to six months of living expenses for emergencies, and that a 20% down payment is the gold standard for purchasing a home. Conventional savings wisdom is tried-and-true, but as financial organizations aim to get a slice of the millennial pie, they must go beyond traditional savings and investing advice.
Unlike previous generations, millennials now earn 20% less than their parents did, have irregular income due to the increase in freelance and gig economy work, and are delaying parenthood or buying a home until a lot later in life. Millennials also have more debt today than baby boomers did in a similar stage in life, and now have to grapple with a high unemployment rate, higher cost of living, and expensive healthcare costs. No wonder millennials are anxious about their financial futures!
Yet, there’s an opportunity for financial institutions to win over millennials by offering more customer-centric products and services that help educate and guide them toward a more secure financial future. Fintechs are increasingly more popular with this audience for this very reason, and big banks have taken notice.
In the last few years, M&A activity has boomed in the financial services industry. Financial institutions are embracing the digital disruption that companies like Kabbage, Plaid, and Galileo have created. Robo services are increasingly becoming the norm on online investing platforms, while financial information apps like Finimize and personal finance newsletter DailyWorth continue to push resources and advice to millennials.
These products and services are meeting millennials where they are, and giving them more control over their financial matters in an easy, tech-friendly format. If big banks and other traditional financial services want to tap into this market, they must prioritize education, digital services, and exceptional customer experiences online. Taking a tech-focused approach to banking and finance are critical. According to one study, 47 percent of millennials prefer mobile banking compared to 23 percent of baby boomers. But if performance is slow, they will happily switch banks because convenience and ease-of-use is paramount.
As financial institutions accelerate digital adoption in 2020, standing out with extra perks like free checking and savings accounts, expense tracking applications, personalization, and other features can make all the difference in attracting and engaging this demographic. If banks and financial services want to succeed long-term, they’ll have to evolve with millennials and balance out their technological preferences with the services they need most.