Why You Should Be Careful with the "M-Word"

Gen YZ Clock 1.jpgEditor's Note: Millennials is a term that everybody is familiar with and far too frequently used. In this blog, we take a deeper dive into the "Millennial" generation and how financial institutions need to understand Gen Y and Gen Z if they want to be successful with the younger population.

Gen Y, 25-34-year-olds, is the largest generation in history. In just eight years, this generation will have a total income greater than that of the Baby boomer and Gen X generations combined. So, it's easy to see why financial institutions, along with almost all other types of businesses, have spent an exorbitant amount of time, money, and energy focusing on how to best serve the Gen Y population.

The complication here is that the expectations of Gen Y differ from the mindset of many businesses, including banks and credit unions. A further disconnect is that these institutions have often misidentified Gen Ys by lumping them under a heading - Millennials - thus weakening their ability to meet the needs of either group.

The members of Gen Z, the generation to follow Gen Y, are now graduating from college and, though it certainly would be convenient if the worldviews and characteristics of Zs were the same as Ys, that simply is not the case. Financial institutions and other businesses, however, seem to think that wishing will make it so, as many try to apply what they have learned via research about Millennials to both Gen Y and Gen Z. This is a recipe for irrelevance and dissatisfied users.

Let's start with some basics. Gen Z is defined as those who were born between 1995 and 2012. According to The Next Generation GapGen Z can be described as independent, focused and fiercely competitive. These Gen Z characteristics are nearly 180° contrasting from some of those used to describe Gen Ys, i.e. cautious, distrusting, compulsive, entitled and privileged.

While Gen Y has often been portrayed as a technologically savvy demographic, this group can recall a time when "being connected" was still more about physical relationships than the Internet.  This is not true for Gen Z who are the first generation to never experience a time when they weren't "connected" in one way or another. Society, of course, has changed along with technology. Consider the difference in the high school experience of a Gen Y versus a Gen Z or the impact on Gen Y of the financial crisis of 2008 versus the Gen Z now graduating into a growing economy. These are a few of the reasons lumping both these generations under the Millennial labels could make financial institution's marketing DOA.

There are some research firms in the financial services industry that have managed to retain the Millennial label while still respecting the two distinctive generations that fall under it. For example, Javelin uses the labels "Young Gen Ys" and "Old Gen Ys". This could seem like a bit of a stretch to save generalization from itself, but, in a recent report published by Javelin, there are some additional insights that help to further define the differences between these two groups.

According to Javelin, for older Gen Ys, technology hasn't always been as prevalent in their lives although they adopt it at a very high rate. For this group, the recession is still a fresh memory and trust in financial institutions, for some, is extremely low, resulting in poor loyalty. But this doesn't mean they will not use financial services or invest. Rather it suggests that their preferred financial services might come from non-traditional providers and the investments that will be attractive to them are unlikely to be equities.

Many of these older Gen Ys already have steady, growing incomes, mortgages, car loans, 401ks and dwindling student loans. Though these characteristics make older Gen Ys a target of interest for banks and credit unions, the methods required to engage them are not yet used very effectively by these institutions. For example, Gen Ys have come to expect an "Amazon-like" experience when online. For financial institutions, this means their banking channels will need to offer the same level of ability to anticipate their needs and personalize offers. 

For the younger Gen Y generation, technology is woven into the very fabric of their lives. Since they can remember, most of them have had access to intuitive, easy to use digital devices. They will expect their user experience when accessing the digital channels of a bank or credit union to be nearly frictionless. This means FIs need to not only offer the latest in mobile app design, but also be considering how to offer voice-activated interfaces via Alexa, Siri, and Google Home. 

FIs that can achieve these goals could be well rewarded. Younger Gen Ys did not directly experience the 2008 economic meltdown. Therefore, they do not demonstrate the same cynicism about financial institutions and the equities market as older Gen Ys. Through the Younger Gen Y are just now starting out in the workforce, they are career-focused and investment oriented. A financial institution that can help them navigate to financial proficiency through targeted solutions can expect to lock-in lifetime customers.

One thing is certainly true. Treating Millennials as a single group that thinks about life, work, and financial services the same way will eliminate any hope a bank or credit union has of really succeeding with the younger customers. The reasons these Millennials - Gen Y and Gen Z - will be with a competitor that "gets" the differences in their outlook and value. As if things were not challenging enough for financial institutions already!