Millennials are getting more attention than they deserve.
Banks can be forgiven for concluding that millennials should be the bull's-eye of every marketing effort. Bolstered by predictions that millennials will soon replace baby boomers as the largest, wealthiest, most desirable customer segment, many financial institutions desperately want to capture these elusive harbingers of profitability.
But the real situation is more complex. Millennials may be a critical market segment for some banks. But for many, pursuit of young people may prove to be an unrewarding drain on capital and a distraction from more pressing issues.
Let's look at the facts.
Millennials, loosely defined as those born between 1980 and 2000, are net borrowers. More than half of millennials report they live paycheck to paycheck and are unable to save much money. Younger families in the Federal Reserve's 2013 Survey of Consumer Finances had lower median income, adjusted for inflation, than respondents in any previous survey dating back to 1989 despite the fact that these families also had the highest percentage of college graduates.
Crippled by college debt and the lowest salaries in decades, millennials may be good prospects for prepaid cards and overdraft fees. But they're not so good if banks are concerned that maintenance costs from bill payment and electronic accounts may exceed the income generated from balances and interchange fees. Millennial customers won't do much to help you build longer-term deposits, either.
Some banks bow to the notion that they should chase millennials and hold onto them until they turn profitable. The idea is to absorb the losses until this generation is old enough to qualify for a credit card, mortgage or automobile loan.
The only flaw in the argument is that millennials may fail to stick around at a bank long enough to become profitable.
Millennials are five times more likely to close all accounts with their primary bank than customers over age 50, according to a 2014 FICO study, and three times more likely to open new accounts with a competitor. They're also twice as likely as older customers to consider switching to a branchless bank and considerably more willing to consider banking with tech giants like Apple, Google and PayPal if the option becomes available.
In other words, banks may find that no sooner have they invested in slick technology, digital media and incentive bonuses to lure young people than they've gone. Certainly there's no return on your money, and there's little chance to even recoup your investment. Pursuing millennials can be a fool's errand.
For the moment, let's assume your bank has created a low-fee checking account that offers a range of mobile services, successfully attracting millennials. This means you've got a customer base that exhibits little loyalty, possibly because a third of them think that technological advances will render banks unnecessary in the future. Forty percent of millennials report feeling "overwhelmed" by one or more debt obligations.
Low-balance, transitory accountholders are not prized customers. Most banks will lose money on them.
The good news is that millennials grow up. Eventually they'll become 40-year-olds, looking for a mortgage and ready to sock money away for their kids' college education. Until that time, maybe it's smart to given them a pass and focus on Generation X. The generation once best known as "slackers" has grown up to be a high-earning, hardworking group with more immediate potential for banks.
Kevin Tynan is senior vice president of marketing at Liberty Bank in Chicago. He can be reached at tynanmarketing.com and on Twitter at @kevintyn.