Millennials are the biggest generation in history. Astoundingly, there are 1.8 billion globally, out of 7 billion people worldwide, with 83 million living in the United States alone. Ranging in age from 20-35 years old, many are well into their careers and are influencing (if not completely re-imagining) virtually every social institution, including the economy. In fact, it’s becoming increasingly clear that Millennials not only have a different relationship with money than previous generations, they have redefined prosperity itself.
Financial service providers that understand the root causes of this sea change, and how they are being manifested in the lifestyle choices of Millennials, stand to gain the long-term loyalty of a group that will be the recipients of the biggest wealth transfer in history: $30 billion over 30 years. Conversely, financial services that fail to respond appropriately to the change could quickly find themselves becoming obsolete.
Fortunately, this massive shift is easy to understand, because it stems from two basic facts about Millennials:
1. They seek freedom and control over their lives, and they define those terms differently than previous generations.
2. They view money as a tool that enables them to achieve freedom and control.
Get to know Millennials:
- 51% of the American workforce. 75% by 2025
- 28% have already reached management level
- 43% are non-white (most racially diverse generation in U.S. history)
- $1.2 trillion in student loan debt
- $200 billion in annual spending power
- 80% own a smart phone
- Most educated generation in U.S. history
How Millennials define freedom and control
Millennials define freedom and control as the number of choices they are able to make about their lives. The reason they place such a premium on choices is that having more of them increases the likelihood of building a lifestyle that enables one to make a positive contribution to the world.
Finding opportunities to use their knowledge, skills and creativity to improve the world is a primary motivator for Millennials, as evidenced by a 2015 Deloitte survey, which found that six in ten have chosen to work for their current employer partly because the company has a "sense of purpose."
Understanding the Millennial desire for a purposeful life, and their belief that financial health creates the freedom and control that enables them to pursue it, is a great first step for financial services seeking to gain Millennial trust.
However, a challenge remains.
Millennial loyalty is an uphill climb for financial services
Research indicates that financial services face serious challenges when it comes to attracting Millennial consumers. The Millennial Disruption Index says that banking is the industry most at risk for Millennial-driven disruption, with four of the leading banks among the ten least loved brands by Millennials. In addition, the 2015 Makovsky Wall Street Reputation Study found that more than two-thirds of Millennials (69%) distrust the financial services industry. In fact, 71% would rather go to the dentist than listen to a banker!
Millennial distrust for financial services is leading them to consider alternatives to traditional banks. Today, 49% of Millennials are interested in purchasing financial services from Google, Amazon or Apple. In other words, a major segment of the Millennial population is willing to utilize the services of non-financial brands to manage its money!
How financial services can win Millennial loyalty
Start by distinguishing between the myths and realities.
Due to their parents, the media, and society in general, Millennials have been under intense scrutiny for most of their lives, which has resulted in a pervasive mythology about their interests and traits. Unfortunately, much of the resulting narrative is negative, frequently describing them as a lazy, selfish and narcissistic group who lives in their parents’ basements and is obsessed with technology.
This one-dimensional portrayal of Millennials does them a great disservice. In reality, Millennials are highly altruistic, generous and community-minded. For example, the 2015 Millennial Impact Project revealed that 84% gave to charity in 2014, despite being underemployed and carrying heavy student loan debts. And 70% spent at least one hour volunteering.
In addition, it’s important to acknowledge the context in which Millennials grew up. Many of them graduated from college during the height of the Great Recession, and according to the Pew Institute, they are “the first generation in the modern era to have higher levels of debt, poverty and unemployment, and lower levels of wealth and personal income than their two immediate predecessor generations had at the same time.”
Yet, while Millennials currently make up 40% of the unemployed, a growing number are managing to lay the foundations of economic independence, including planning for retirement, paying down debt and increasing savings.
Recognize that Millennials distrust, and are disrupting, institutions.
Multiple studies, including a recent Harvard Institute of Politics poll, indicate that Millennials are the least trusting of all generations, especially when it comes to institutions. They are particularly skeptical of “government, the American justice system, and the media.”
It’s easy to understand why Millennials would question societal infrastructure, considering that in their short lifetimes, they’ve witnessed:
- The Great Recession
- Mass shootings
- Church sex abuse scandals
- Racial conflict
- Unethical behavior by politicians, athletes and celebrities
Notice how Millennials are changing the workplace.
Millennials are having a profound impact on how business is done by seeking employers who demonstrate a commitment to solving social challenges in addition to seeking profit. New business models, like B-Corporations (businesses that are designed and certified to create as much social good as profit) are employers of choice and speak to the generation’s altruistic tendencies.
New management structures, such as the Holocracy, a self-management model pioneered by online shoe and clothing company, Zappos, are also disrupting the workplace by creating greater levels of accountability and collaboration. The Holocracy is too new to be declared a success, but given that 88% of Millennials prefer a collaborative work culture over a competitive one, the Holocracy, or a similar management structure stands a good chance of succeeding.
How financial services can engage Millennials
What Millennials want from financial services can be summed up in two words: Transparency and technology.
Ambiguity in how a client’s money is managed is a relationship-killer when it comes to Millennials, especially if it involves lack of clarity about fees. In addition, multiple studies have found that Millennials believe financial advisors communicate with them in ways that feel antiquated and irrelevant to their current needs and interests.
The Millennial desire for transparency presents a huge opportunity for financial service providers. Those who lift the veil of mystery around fees, for example, while also making an effort to understand the unique economic circumstances (including fears, pressures, and aspirations) of Millennials stand a greater chance of gaining their trust.
To further solidify the relationship, financial advisors should build an ongoing partnership with their Millennial customers, one in which the advisors function like personal athletic trainers, helping clients to set and pursue goals that will enable them to reach financial autonomy. Collaborative by nature (and already steeped in both the world of personal training and the concept of personal development), Millennials will respond well to this approach. It can even help create a greater sense of transparency, since information is often more consistently and openly shared in a partnership.
It may seem counterintuitive to suggest a method of engaging Millennials that is grounded in human contact versus technology. While it is true that Millennials are fueling the growth of financial technology (FinTech) such as robo-advisors (online, automated wealth management systems), a 2015 study by LinkedIn found that 87% of affluent Millennials (there are 15.5 million in the U.S. alone) still value expert financial advice, especially when it is combined with digital tools that help them maintain autonomy over their financial landscape.
Ultimately, any actions financial advisors and their institutions take to make information clear, comprehensive, accessible and relevant to the life stages of their Millennial clients will be rewarded.
Efficiency. Ease-of-use. No fees. Comprehensive, turnkey solutions. Data tracking. These are all capabilities that attract Millennials to FinTech. The key, as mentioned in the previous section, is to provide them with a mix of humanity and technology that helps them feel understood, informed and in control of their finances.
For further evidence of the Millennial desire for efficient technology coupled with in-person access to financial experts, consider credit unions, which Millennials are joining in staggering numbers. In 2014, credit union membership broke the 100 million barrier, and Millennials constituted 28% of the new members. Their reasons for doing so included:
- Local branches staffed by in-person financial experts who develop personal relationships with their customers.
- Belief that credit unions, especially since they are non-profit organizations, are primarily concerned with promoting the well-being of their members
- Up-to-date use of technology, including mobile banking
Five key takeaways
1. Millennials define prosperity as the ability to make choices that lead to a purposeful life.
2. Millennials are more altruistic, pragmatic and hard-working than they are often portrayed in the media.
3. Millennials distrust banks, but many still value the expertise of financial advisors, who should act like financial personal trainers by providing information and guidance that helps clients maintain autonomy over their economic landscape.
4. Millennials are helping to drive the growth of FinTech, which is having a revolutionary impact on the financial services industry.
5. Millennials are joining credit unions in large numbers, because they provide a holistic blend of humanity and technology.
The financial services industry is experiencing a transformation that is greater in scope than anything it has experienced in the last fifty years. Among the many changes are the rise of Millennial consumers. Financial service providers that recognize the Millennial frustration with traditional institutions and their desire for financial autonomy, stand a good chance of winning the business of the largest generation alive today. The key lies in understanding the unique needs, challenges and preferences of Millennial consumers and working collaboratively with Millennials to address them. Such partnerships can position both the financial services industry and their Millennial consumers to thrive in the new marketplace of the 21st century.