BROOKFIELD, Wis.-However consumers between the ages of age 18-35 are defined, whether referred to as Gen Y or Millennials or some subset thereof, one person has an entirely different name for them-one that challenges many of the assumptions about these consumers: the High Maintenance Generation.
The multiple descriptions reflect the challenge to credit unions. Young consumers are the focus of tremendous attention within CUs seeking to penetrate this large (an estimated population of 93 million) and influential generation seen as key to future credit union viability. That much is agreed upon. Whether the newest generation of consumers will really act differently from their predecessors, or whether it's even correct to lump everyone in a generation into a common behavioral set, is the subject of much debate and is explored in this Special Report by Credit Union Journal.
"They're the primary users of mobile, tablet and so many digital services, but they're also the highest frequency users of high-cost channels like branches and call centers and even to some extent ATMs as well," said Daniel Steere, director of product management, mobile payments at Fiserv, noting that the company coined the term as part of a
Fiserv's data also finds that Gen Y consumers are most likely to open new accounts, either online or in the branch. Fiserv classifies Gen Y as consumers age 21-32, whereas others tend to skew a bit wider, from age 18 to 36. Most companies and institutions also use the terms Gen Y and Millennial interchangeably. Credit Union Journal has followed suit in this report that appears on the following pages.
Settling Down, Just Not Yet
"The reality is that their stage of life is probably more high maintenance than the individuals themselves," said Steere. "When we look at why they're going into branches, it's because they're doing things that can't be done online-opening and closing accounts, resolving disputes, using a safety deposit box."
Steere went on to note that consumers at that age are often living "a very fluid lifestyle" that may include moving to different cities, stating new jobs and meeting the people who may ultimately become their spouses.
"That kind of makes you by definition a high maintenance customer; you're going to have to be doing the kind of things that can only be done face to face. So the hypothesis we came back with was that they are somewhat high maintenance, but we expect over time, as they move into their thirties and the oldest approach their mid-thirties, they're going to settle down, start families and become a bit more stable. And we expect to see, as they do get older, they're going to be less dependent on physical channels, high-cost channels, and moving almost all of their financial management to digital channels."
Previous Fiserv studies of Gen Y have examined 3,000 consumers, but Steere said the company hopes to increase that to 10,000 for its next study in order to do some sub-segmentatation, rather than lumping all consumers ages 18 to 35 into the same bucket.
"The industry lumps them together, but in reality they have very different lifestyles and financial needs," he said.
Fiserv is hardly alone in peering into the minds of Gen Y. The Filene Research Institute, Madison, Wis., for example, is finalizing a study about channel delivery among different generations. Filene's Research Director Ben Rogers noted that the research has not found that young consumers use all channels more, but yet to be determined is why that is.
"My hypothesis is that they manage their money more closely because they have less of it, so they're going to be checking, transacting more often, and depositing and withdrawing in smaller amounts," said Rogers. "Also, they're just not very established. They're moving around more, getting used to financial services and learning the ropes, and using all channels more as they learn."
One study finds that there are at least some key differences within younger demographic groups.
A recent paper from the Journal of Consumer Behavior finds a splintering between older and younger Millennials when it comes to finances. Younger Millennials, the researchers found, "are significantly less likely to embrace 'thrift' as a value than the (older Millennials). They are less likely to value saving and living simply and more likely to live extravagantly."
The researchers note that these consumers-age 18-26-may be relying on their parents to support their lifestyles, or they may not yet have internalized the Great Recession. Older Millennialls, on the other hand, having graduated from college at the height of the Great Recession, "are facing stressful circumstances that require them to save and not live extravagantly" and "appear to be dealing with the realities of the economic downturn on their lives."
Kids Change Everything
Charles Schewe, professor of marketing at the Isenberg School of Management at the University of Massachusetts, Amherst and one of the researchers on that report, told Credit Union Journal that life stage may be the mediating factor in that schism among Millennials.
"Once you have children, your focus changes dramatically," he said. "I think, generally, your Millennials are much more financially responsible than the Gen Xers who are in front of them."
Schewe noted that that while Gen Y consumers may seem to be behaving differently now, once they get married or have kids, "they'll become maybe that much more 'traditional' or 'normal' in their thinking."
But Schewe noted there remains one major unknown hanging over this generation: the immense student loan burden carried by so many Millennials. "The debt from school is so outrageous, and that stymies the ability to buy a house or even get married, much less save, and that wasn't true with other cohorts," he said.
Great Expectations
While many analysts agree the newest generations will ultimately end up on a similar track as previous generations (
"This generation is different in their expectation level," said Charlie Lai, EVP and chief information officer at FAIRWINDS CU in Orlando. "They never dealt with stuff like having a landline or doing things not through electronic channels. They've typically always had the Internet, they've very comfortable with it, and in fact their first choice in how they interact with each other is through electronic devices. That creates a culture shift in expectations, and that raises our price of entry into the market for their services going forward.
Both Lai and Schewe said that Gen Y appears to be smarter than previous generations when it comes to understanding finances, but Lai observed that can make a CU's job that much tougher, because lending is so difficult right now.
"But I think where they want to go in life is the same as any previous generation," said Lai. "People want stability, they want to be comfortable, they want to feel like they're in control of their finance. I don't think that's unique to this generation. I some ways I think this access to information makes them smarter than previous generations."
Behave Yourself
At Affinity Plus Federal Credit Union in St. Paul, Minn., Manager of Financial Accounting Tasha Dahl is among those who agree Millennials lead different kinds of lives than older generations, but when it comes to behavior there's not much difference, Dahl has observed. While many in that generation are not yet ready for mortgages as early as Gen Xers or Baby Boomers, they largely use the CU's products the same way-but access them through different channels.
The big question for many credit unions is whether younger consumers put the not-for-profit in credit unions, or whether they can indeed contribute to the co-op. Dahl believes it's the latter; it's just that Gen Y doesn't generate the level of revenue other groups of members do-at least not yet.
"I don't think we necessarily view them as unprofitable," said Dahl, who is a member of Gen Y. "They're using their debit card a lot. They don't write checks and they don't use cash, so we're making interchange off that $2 swipe at the gas station. So there are other ways those members are profitable for us. Maybe not related to interest income on a loan, but we're feeling that they're a huge investment in the future.
"We know we have to really invest in our younger generation," Dahl continued of the challenge to Affinity Plus and other CUs. "That may mean spending a lot of money on technology we believe the Millennial generation wants, but that to us is a solid investment, because we're building that relationship for the long term."
