Gen Z Ready for the Spotlight
Many credit unions, already weary from the pursuit of millennials, may not have the energy or resources to go after Gen Z.
Born between 1997 and 2012 (roughly), the youngest members of Gen Z are only about six years old; the oldest are around 21, according to consulting firm Accenture. Many of them are still small, but together they’re mighty: at 86 million strong, Gen Z is enormous (there are about 56 million millennials in the workforce, according to Pew Research), and its members may be the most digitally inclined people the country has ever seen. They’ve never really experienced a world without smartphones, social media, video calls, texting, GPS or streamed entertainment.
Though many credit unions, already weary from the pursuit of millennials, may not have the energy or resources to go after Gen Z, industry experts say credit unions need to do it anyway — and now. Here are three things they said credit unions can do to get started.
Offer Gen Z-friendly products
“Whoever gets to them first is going to have the best opportunity to create some loyalty,” warned Scott Butterfield, who is principal at Your Credit Union Partner in Sumner, Washington.
“We have this conversation a lot with credit unions right now, and it really speaks to the larger strategic question: Who will our borrowers be five years from now?” he said.
Gen Zers have relatively thin credit profiles, Butterfield noted, so offering products that help them build credit can generate enormous loyalty.
“That means maybe using alternative data to enhance the credit profile that you’re looking at to make your decision. It may mean some flexibility,” he said. “These kids are going to graduate from school, and the research shows they’re concerned about debt already. And so what’s a credit union going to do, stick to their 42% debt-to-income ratio? Or are they going to be willing, if someone’s going to school, to do a 50% debt-to-income ratio?”
First-time auto loan programs could be another option. Marne Franklin, who is digital director at Your Marketing Co. in Greenville, S.C., works with credit unions that offer those programs. She said parents often co-sign the loans, which are often tied to debit cards with parental controls. Credit unions can add financial education into the mix by offering lower interest rates to borrowers who take financial education classes online or pass a quiz, she added.
Savings products could also be especially attractive to Gen Zers, many of whom remember the recession and its impact on their families.
“Saving is going to be critical to them. But they’re not necessarily interested in saving for retirement. I think the best way to describe it — they’re interested in saving for a lifestyle,” said James Robert Lay, founder and CEO of Digital Growth Institute in Houston, Texas.
Credit unions might need to change some product names in order to make them more relatable to Gen Z, however.
“They might have a relationship with X brand for, not a ‘checking account’ — because what’s a check? — we’ll call it a ‘spending account,’” he said.
Cultivate rather than transact
The members of Gen Z aren’t set in their ways — but they’re about to be. Credit unions that offer financial guidance and education could position themselves for huge long-term payoffs.
“When they need advice to buy a car, when they need advice to go to college, they need advice for anything, they turn to their peers — their close social peers. And they’ll say, ‘So, what do I need to do?’
Credit unions can provide some advice — and I’m not talking about formal financial education where you sit down with them and you go through your PowerPoint and it lets you create a budget,” he said.
That education and guidance needs to happen outside of branch advisory departments, Lay added.
“Member service is so 2010. The next evolution will not be member service — it will be member coaching,” he said.
“Start selling hope. Stop selling financial product. The premise of this is behavior modification and accountability,” Lay added. “That’s what I’m talking about with financial coaching, financial guidance. That’s the next evolution. And I believe, from a Generation Z perspective, that would be invaluable to that demographic.”
The trick, however, is to relay the information in a way that’s compelling and easy for teenagers to understand.
“They’re not going to get a mortgage tomorrow, but they’re probably at some point going to get a mortgage, or an auto loan, or two or three auto loans,” Franklin said. “Those teenagers — they’re getting more and more money savvy; they’ve grown up being able to manage it from their phones. I think that they’re educated, they’re smart. Thinking, ‘We’re going to wait and catch them in their first job out of college,’— I think you’ve missed the boat.”
Prioritize technology
“If you are appealing to millennials and Gen Z and you’re trying to get them to the door and they get there and they say, ‘Cool, let me see your app’ and you don’t have one or [don’t] have one that’s great or usable or functional or intuitive, then you just wasted a bunch of money to get them there,” Franklin warned.
Gen Zers have never had to go to a branch to make a deposit, and they’re not about to start, she added. Credit unions have to move beyond in-person interactions if they want to form tight connections with Gen Z.
“’We’re community, we’re people helping people’ — those are really great cornerstones that we built this industry on, but those can’t be the only things,” she warned.
“You can still be community focused, and you can serve people, and you can be people helping people — but you better have an app,” Franklin said. “You better let me access my money wherever I want. I better be able to go to dinner and if there’s three of us and we want to split a bill, I need to be able to send that person money and not have to go get cash somewhere. If I’m inconvenienced, it doesn’t matter how community focused you are. I’m not going to stick around.”
Gen Z’s impatience with dated technology is sure to fuel “digital Darwinism,” as Lay put it. “Digital Darwinism is when society, people, technology and the competition evolve faster than a financial brand or credit union can.”
“The millennials — that was your warm-up,” he said. “As Gen Z comes along, this is where stuff gets real.”