With millennials expected to become the dominant U.S. consumer in the coming years, credit unions find themselves at a critical juncture in which they must understand the financial needs of this huge segment of the population – one that's set to outspend their parents and grandparents by next year.
That's according to "A New Look at Millennials and Credit Unions in America," a recent report from Financial Partners Credit Union, GTE Financial, Patelco Credit Union, and the Center for Generational Kinetics LLC, which indicates that millennials are now the largest generation in the American workforce and by 2017 will out-spend the aging Baby Boomers.
"If credit unions are to continue to grow and serve increasingly diverse needs and generations, Millennials are the tipping point," the report stated.
The national research study uncovered some interesting information about the general public's (including millennials) views on credit unions.
For example, more than any other segment of financial institution customers, 42% of current credit union members consider the institution's reputation to be influential in their decision to become a member. The corresponding figures from national bank customers and local bank customers are 31% and 24%, respectively.
"The bottom line for credit unions is that promoting their reputation is absolutely critical to attracting and keeping members," the report asserted. "This importance will likely only grow with millennials who are frequently cited as saying that mission, vision, values, and sense of purpose are important to them when choosing everything from an employer to a consumer brand."
However, many millennials (53%) cannot distinguish between a credit union and a bank, suggesting credit unions need to promote themselves better to this group.
Moreover, a stunning 73% of millennials do not even understand that credit unions are not-for-profit, member-owned financial institutions. In addition, 69% of millennials do not even realize that credit unions often offer better loan and savings rates than traditional banks. And more than half of all millennials (57%) do not know that credit unions often offer the same services as banks.
Even a significant portion (33%) of existing credit union members can't describe how a credit union differs from a traditional bank.
"If current credit union members have difficulty explaining the differences between traditional banks and their own credit union, one can only imagine how unclear credit unions must seem to millennials," the report warned. "This generation has decades less banking experience than other generations, which likely only amplifies their confusion in understanding the difference between traditional banks and credit unions."
The report believes that this "knowledge gap" among millennials presents a huge opportunity for credit unions to grow membership in the coming years and decades.
Ironically, many of the characteristics of credit unions – their not-for-profit status, their engagement with the community, buying local, etc. – align perfectly with the values of many of the millennial generation.
"In short, the message of credit unions is simply not being communicated," the report asserted. "Credit unions would appear to be exactly the right financial solution for millennials at exactly the right time if millennials know what makes credit unions different from banks and other financial choices."
Also, despite the proliferation of TV commercials, social media and other forms of advertisement, it appears that old-fashioned "word of mouth" messages are the most effective way of attracting new members to credit unions.
Indeed, the study found that more than one-third (34%) of millennials have heard about their current primary financial institution through a family member's recommendation. Another 16% of millennials heard about their financial institution because a family member used it first. Thus, about half of millennials were introduced to their current financial institution through a family member. Recommendations from friends also play an important role in the selection of financial institutions.
As for technology, the rapid emergence of mobile banking means that it will soon become an indispensable practice among bank customers. The study found that 22% of millennials already use banking services on their mobile devices daily; while another 22% use these services several times each week, and 29% use them weekly. Thus, three-fourths of millennials are frequent users of the mobile devices in their financial lives.
"Providing a rock-solid mobile experience is critical for financial institutions today," the authors of the report said. "It presents another opportunity for credit unions to meet millennials where they're at, and help send the message that credit unions have the same products and tools as traditional banks."
As such, credit unions need to continually update their mobile services in order to make it as convenient and seamless as possible.
Based in Pleasanton, Calif., Patelco CU has $5.5-billion in assets; based in Tampa, Fla., GTE Financial has $1.8 billion in assets; based in Downey, Calif., Financial Partners has $1.2-billion in assets.
The Center for Generational Kinetics is a research and solutions firm on Millennials, generational differences, and the generation after Millennials, iGen.
