Oct 1

Oct 1 Missing the Gen Y boat?

Credit unions are failing to attract the younger generation but there is hope, with these tips.

I feel like this “lack of Gen Y credit union members” thing has been beaten to death in print and at industry conferences. But, no matter how much it gets talked about, only a small group of progressive credit unions have actually done anything to tackle the issue head on.

According to the Credit Union National Association, the average age of an American credit union member is 47, and according Credit Union Central of Canada, the average age of a Canadian credit union member is 54. Considering the average age of a North American is 35, these are sobering statistics.

So why are credit unions north and south of the 49th parallel missing the Gen Y boat? The problem and the solutions go well beyond branding and marketing.

Who is This Elusive Gen Y?

In broad strokes, members of Gen Y are 18 to 32 in 2012. They are socially conscious, tech savvy and they distrust companies and media. They are confident but wary, have a practical world view, are goal-oriented and respect parents and education. They were raised on texting and instant messaging, and social networking is part of their lives. They spend to have fun, respond to truthful advertising and are disdainful of image and hype. And, unfortunately, they could care less about your credit union.

This matters because, at 76 million people, Gen Y is now the largest generation ever in the United States, eclipsing even the baby boomers. Credit unions essentially skipped a generation—at only 50 million U.S. citizens, Gen X was a blip on the demographic radar as credit unions thrived off the boomers. But reality has hit: Boomers have started to retire and pass away and credit unions have done a very poor job educating young adults on the benefits of credit union membership.

Educate, Educate, Educate

The irony is that credit unions and Gen Y have a lot in common; Gen Y just doesn’t know it yet. Almost three quarters of Gen Y have no idea what a credit union is. According to CUNA’s 2011-2012 Survey of Potential Members, 69 percent of consumers ages 18 to 24 are “not at all familiar” with credit unions. And to confound things further, a recent study by Ron Shevlin of the Aite Group concluded that only 5 percent of Gen Y will consider a credit union the next time they need a financial product. That’s only one out of 20 young adults who will even think to put a credit union on the consideration list of potential financial institutions when thinking about a checking account, car loan or credit card.

According to the 2009 McKinsey Financial Institutions Consumer Insights Survey, younger consumers trust banks while older consumers trust credit unions most. Only 4 percent of those aged 18 to 34 indicated they would trust a credit union with their money, compared to 14 percent trusting banks. On the other end of the scale, 30 percent of those aged 55 and over indicated they would trust a credit union with their money compared to 16 percent trusting banks.

Gen Y’s lack of trust in credit unions comes from a lack of knowledge and understanding of what a credit union is. I bet many of your staff don’t even know the difference and the advantages of credit union membership. Educate and test your staff regularly on the fundamental differences between banks and credit unions, the seven cooperative principles and why the cooperative business model benefits your members. If you make this simple education an essential part of your training and human resources processes, your staff will be better equipped to talk persuasively to members and potential members.

Without a large-scale unified national or international campaign to explain what a credit union is and why it matters, the job falls on individual credit unions to tell the story. Your credit union’s website needs to succinctly explain the difference, and your branding and marketing efforts need to drive home what a credit union is and why your credit union is the best choice for consumers.

In addition to educating young people about the advantages of banking with a credit union, credit unions have a unique opportunity to deliver on the promise of financial literacy. While many U.S. states currently have K-12 personal finance education or guidelines in place, results from the Jump$tart Survey of Personal Financial Literacy still indicate low levels of financial literacy among American youth.

This is the perfect place for credit unions to step in and fill the void. Why not reach out to the high schools in your area and ask if there is an opportunity to present a series of workshops in the classroom?

The National Endowment for Financial Education (www.nefe.org) provides financial workshop kits that can help you reach out to your community by providing the tools and resources needed to deliver financial education information to underserved audiences.

This is not a place to overtly push your credit union and your products, but it is an opportunity to talk about the advantages of credit union membership in general.

Many credit unions have also created educational and entertaining videos and blogs that have helped to attract and

educate young people. However you decide to provide useful information, make sure to deliver it in plain-English and in a fun, entertaining, engaging and accessible way.

Accessibility and Technology Are Key

Today’s young adults travel a lot and are more likely to live away from their home town. Because of this, they may feel credit unions are too local to fit their needs. To Gen Y, technology and convenience trump the feel-good credit union story; that’s

why it’s important to stress accessibility, including shared branching and shared ATM networks. These concepts may seem like obvious advantages, but they are totally under the radar. If young people have no idea what a credit union is, they certainly don’t know CUs are accessible from far and wide.

In the minds of consumers, big banks are beating credit unions to a pulp in terms of technology and accessibility. There are exceptions to the rule, but credit unions with less than $250 million in assets will be hard pressed to keep up, much less take a leadership role. The offerings from the mega banks, regional banks and online banks are impressive and hard to compete against. It’s unrealistic for your credit union to build everything in house—this makes your choice of technology vendors so important. Make sure you are pressuring your vendors for technology solutions that allow you to compete with your big bank competitors.

At a bare minimum, your credit union needs a modern website with either a responsive design approach or a mobile version that is usable on smartphones and tablets. Your online banking system needs to provide a stellar user experience and be accessible and easy to use on any screen size. While having native iOS and Android apps may have been a differentiator a year ago, it’s an expectation today. Every one of your major bank competitors is on at least version 2.0 of their apps.

And, as time marches on, financial institutions that don’t have online account opening, online personal financial management tools and text alerts have no chance of being on the Gen Y consideration list. If that’s not enough, savvy young adults are looking for ATM and POS fee rebates and overdraft forgiveness.

Another hurdle credit unions must tackle head on is explaining what a member share is all about, especially if the requirement is more than $50. To Gen Y, the concept is nebulous and feels like a tax, especially when they don’t have a lot of money in the first place. Getting across the member-ownership concept and the basic principles of one member, one vote is an important way to show the value of membership.

For credit unions in the U.S., restrictive field of membership requirements are also a barrier to entry. Even with the broad-based shift to community charter credit unions, there is still a perception among Gen Y that credit unions are exclusively for union members. Again, education is the key. You may be tired of explaining what a credit union is and who can join your credit union, but you can never tell the general public too many times. Remember, accessibility is key.

Improve Your Transaction Products

As people get older, they get really tied to their financial institutions. The perceived hassle of switching increases with age as more products and services are added. The time to strike is when people are young and going through transition. Members of Gen Y are going through tremendous disruption in their lives as they transition from high school to college, from college to the work force, from living at home to living on their own, and from being single to getting married and having children of their own. All of these transitions represent opportunities for your credit union.

Your credit union’s best chance to make an impression and land a new member is by offering transaction products tailored to the needs of the young adults within your field of membership.

The checking or spending account is still important. As large banks consider moving away from free checking you now have a better chance of standing out if you can continue to offer free checking. Bundle your checking account with a debit card and make sure your transaction products are full featured and include free access to online banking, online bill-pay and e-statements. Offer relevant debit rewards that appeal to young adults. Ideally, your debit rewards program should not be a one-size-fits-all program but tailored to what different demographics want.

This may seem like a loss-leader approach, but being the go-to source for day-to-day transactions is the best way to forge a deeper relationship and to establish your credit union as the primary financial institution. With an active cross-selling culture, this approach can lead to members adding more profitable products like credit cards and auto loans.

Speaking of credit cards, a starter credit card should be next on your list of Gen Y must-have products. Considering that a first credit card lasts 15 years on average (according to “The First Credit Card,” a research brief from the Filene Research Institute) this is an ideal way to land and keep young adult members. This is why big banks are so aggressive with campus sponsorships and bait-and-switch offers.

Credit unions have an opportunity to differentiate by offering responsible credit cards. The sad reality is that the average college senior is carrying almost $3,000 in credit card debt and paying way too much in interest. Start with a low introductory rate that rises steadily and predictably and add additional enhancements such as allowing up to three over-the-limit or late-payment fee waivers per year and linking your credit card to a savings or investment account and offering an “overpay” option, or cash back to savings automatically. Also consider sharing credit scores with your members regularly.

Customization is huge with young adults and it is a great way to differentiate your plastic products. Allow members to add their own picture to their cards or pick from an assortment of cool designs. Frank Bank in Singapore offers more than 130 amazing designs for its customers to choose from. You should even consider running a contest to crowd source some local and youth-centered designs.

As major retailers and technology companies aggressively move into the payments space with prepaid cards and mobile wallet technology, you need to take payments very seriously. Again, don’t try to go this alone—work with your technology providers and credit union service organizations to navigate this emerging space.

Design Loan Products That Work for Young Adults

In the past decade, the average student debt level rose by over $10,000 to more than $20,000 in the U.S. Your credit union has the opportunity to help a generation of well-educated and disenfranchised young adults who need help. These are your community’s future professionals with large potential career income. If you decide to focus on this market segment, concentrate on consolidation and communicate the benefits of one bill instead of many. If possible, offer a lower-than-standard rate and bundle your loans with your youth-centered transaction products.

The first car loan is another great opportunity to start a long-term relationship. In fact, according to CUNA, 40 percent of the cars sold in the next 10 years will be purchased by Gen Y. Because members of Gen Y are just starting out, many might not have established credit—this is why it’s important to evaluate loan worthiness on character, capacity and collateral in addition to credit score.

If your credit union is reliant on indirect lending to sell auto loans, make sure to use the opportunity to encourage a deeper relationship. Consider bundling your loans with a checking account and require automatic payroll deposits to get your best rate.

Time Is not on our Side

I have presented a laundry list of technology needs, appealing products and services, communication tips and marketing ideas to help you succeed at closing the age gap at your credit union. It is an extensive list and it is likely a little overwhelming. You don’t have to do everything I have prescribed, but please take the young adult issue seriously and use the pieces you feel will work best in your market and that your credit union can afford. Good luck.

Tim McAlpine lives in Chilliwack, British Columbia, Canada. He is the President and Creative Director of Currency Marketing, an integrated marketing agency specializing in helping credit unions attract the next generation of members. Tim is best known as the creator of Young & Free and CUES Next Top Credit Union Exec, and co-creator of the CU Water Cooler.