Apr 242012
 

Community Banks and Credit Unions are doubling down on their efforts to grow the proportion of Gen Y in their customer base.  We find this strategy puzzling given the mountains of data that suggests Community Banks and Credit Unions should focus on the affluent (read here and here), rather than investing resources on Gen Y which is likely to results in negative ROI (read here and here).

Yet another data point comes from Pew Research Center that notes that Gen Y has been hard hit by the recession and the profound changes in the employment realities.  Their February 2012 survey entitled Young, Underemployed and Optimistic provides important insights to businesses that believe that their near-term (next 3 – 5 years) growth and profitability are dependent on Gen Y.

Optimism
Just 31% of Gen Y say that they earn / have enough to have the kind of life that they want, as compared to 50% Gen X and older.  Optimism among Gen Y is registered for 57% who say that they will earn / have enough in the future, although that is not the case today.  This level of optimist is more than 3x higher for Gen Y, as compared to Gen X and older population.  Just 9% of Gen X believe that they will never earn / have enough to have the kind of life they want, which compares to 28% for Gen X and older population.

YoungUnderemployedOptimistc Optimism Gen Y Hard Hit By Recession But Youthfully Optimistic

Is this optimism warranted?  Or is it a reflection of youthful naiveté?  Only time will tell… but the shifts in the need for labor, relatively wage levels and household wealth trends make such optimism difficult to support.

Wages
Median wages of Gen Y are 25% – 60% lower than that of older generations.  Perhaps more worrisome, real median wages for Gen Y are evidencing a slow but marked decline over the past several years.

YoungUnderemployedOptimistc Wages Gen Y Hard Hit By Recession But Youthfully Optimistic

Unemployment
Unemployment rates for Gen Y significantly exceeds the national average and the unemployment rates for Gen X and older population.

YoungUnderemployedOptimistc Unemployment Gen Y Hard Hit By Recession But Youthfully Optimistic

Wealth
Gen Y median wealth is less than $5,000, while older generations exceed $100,000 in wealth, according to Pew Research Center survey entitled The Rising Age Gap in the Economic Well-being published in November 2011.

YoungUnderemployedOptimistc wealth Gen Y Hard Hit By Recession But Youthfully Optimistic

Further, the share of households with no or negative net worth is climbing for all age groups, but is significantly higher for Gen Y, with most recent data indicating that 37% of Gen Y have no or negative net worth.

YoungUnderemployedOptimistc NoNetWorth Gen Y Hard Hit By Recession But Youthfully Optimistic

Job Selection
As a result of the poor economy and few opportunities, nearly 50% of Gen Y admits to taking a job just to pay the bills; another 35% has “hidden” by going back to school.  Nearly 25% of Gen Y admit to having to move back in with their parents, and more than 20% have postponed getting married and having children.

YoungUnderemployedOptimistc Impact Gen Y Hard Hit By Recession But Youthfully Optimistic

Implications
Data overwhelmingly suggests that Community Banks and Credit Unions that are devoting resources to Gen Y programs have misunderstood the opportunity or have been misdirected by “consultants”.  The Pew findings along with the findings of other researchers (see links to related posts at the top of the article) offer little clarity as to the opportunity for meaningful banking relationship with Gen Y in the next 3 – 5 years, at a minimum.

Success requires strategy that is strongly supported by facts, and / or trends.  We recommend that all Community Banks and Credit Unions reassess their efforts to ensure that their focus is directed to the customer segments that are likely to result in growth and profitability.

 


Serge Milman

Serge Milman is the Principal Partner of San Francisco, CA based SFO Consultants which provides Strategy, Finance and Operations Management Consulting services. He is also the Principal of Optirate – a blog dedicated to growth and profitability strategies for Banks and Credit Unions. Serge can be reached at info@SFOconsultants.com.
  • http://www.OptiRate.com/ Serge Milman | OptiRate

    And the news only gets worse for GenY —- 50% of recent graduates are un- or under-employed according to AP research (http://news.yahoo.com/1-2-graduates-jobless-underemployed-140300522.html).  This further reinforces that Gen Y is generally not a good fit as a customer base for Community Banks and Credit Unions.

  • http://www.OptiRate.com/ Serge Milman | OptiRate

    yet another study (http://blogs.smartmoney.com/advice/2012/07/06/the-jobless-class-of-2012/) reveals that
    - less than 50% of those who graduated college since 2006 have full-time jobs
    - most college graduates are settling for jobs that in the past would have gone to those without a college degree
    - the unemployment rate for 18 – 29 year old demographic is a whopping 17% (more than double the national average).

    This is indeed a very difficult time. Yet Banks and Credit Unions must understand their customer base with the objective of developing products & services that fit the various segments. This would not only benefit the consumers but the Financial Institutions themselves.

/* ]]> */