Insights and Best Practices for
Banking the Generation X and Y Markets

By: Mark Brandt - Project Manager: Market Insights, Inc.

Introduction

One of the most important issues today in the financial industry is how to capture market share among Generation X and Y. The Baby Boomer market is beginning to age and according to Bill Geist, who wrote a book in 1997 called "The Big 5-Oh," a Boomer turns 50 years old every 7 seconds. On the other side of things, according to the latest census in 2000, there were about 139 million Americans under age 35 (nearly half the US population). The US economy is still very much geared toward the Boomer generation, with the website "Baby Boomer Headquarters" ( www.bbhq.com ) reporting that approximately 76 million members of the Boomer generation still make up the vast majority of today's workforce. Until now most financial institutions have focused primarily on the Baby Boomer generation due to their wealth and history of financial product use. What these same institutions are finding now is that as the Boomer generation ages, the younger generations are beginning to find their place in society as consumers and are starting to have more needs for allocating their money. The ultimate question for financial institutions then becomes, how do we successfully shift our focus to include these Gen X and Y customers, and how do we get them in our doors?

The Core Values of Generations X and Y

When examining how to successfully bank this younger market, we must first focus on the influencers that are most important to these generations. These can be summarized as the core values of the Gen X and Gen Y segment. The top four values for Gen X (born between 1965 and 1976) include (1) their doubt that Social Security will be available to them at retirement age, (2) the fact that they are beginning to make their retirement decisions at a much earlier age than Boomers, (3) they tend to value time over money, and (4) their key financial interests tend to be financial planning and web based services.

Four of the top core values for the Gen Y segment (born between 1977 and 1994) include (1) the fact that they are actually financially savvy and know what they want, (2) they have never experienced a significant economic downturn, (3) they tend to view debt as a necessity but also view saving and investing with equal importance, and (4) they save on average 19% of their income.

Delivery Preferences

Another key area to the success of banking the Generation X and Y markets is to understand what their delivery preferences are. These younger generations have different feelings on how and where they want to bank, compared to the Boomer generation. Top preferences for the Gen X segment include (1) the internet is the most preferred method of interaction with their financial institution, (2) they prefer financial planning from their bank/credit union (42% have a financial planner; 15% plan to locate a financial planner online), (3) they would use account aggregation if their institution offered it.

Top delivery preferences for the Gen Y segment include (1) personalized and customized delivery, (2) prefer online banking (every service must be offered online for them), (3) they are face-to-face oriented and prefer building relationships, and (4) access is very important (they do not want to wait in lines).

Methods for Approaching Generations X and Y

Now that we know a little more about some of the influencers and core values of the Generation X and Y markets, it is time to ask "how do we approach them" from a sales standpoint?   One of the first things to keep in mind is that brokerage firms tend to ignore this market segment, because they are too busy targeting the older and more wealthy Boomer generation. This leaves the Gen X and Y market wide open for banks to take full advantage. As an example, an article written by Howard Stock of Bank Investment Consultant Magazine says that a trend being seen recently is that these generations (mostly the Gen X'ers) are trying to manage their own money and investments without a great deal of success. This is partly due to unstable markets over the last several years. These Gen X'ers are now realizing they need help managing their portfolios and are actively seeking financial planners. According to research performed by New York Life Investment Management, half of Gen X'ers say they need help in managing their investments, but only 25% of those currently use a portfolio manager. The research also showed that another 28% plan to use an investment professional in the near future. This clearly shows that there is a market here that is untapped as of yet, and could yield great benefits to the banks who decide to correctly pursue this market.

Examples of "Best Practices"

These examples show how different financial institutions use not only marketing, but community education programs, fund raising organizations and philanthropy to gain exposure within the Generation X and Y segments. Maintaining a "fresh" outlook on marketing approaches, being involved in your local community programs or foundations, and providing the availability and technology that these segments demand are all ways to help your financial institution successfully gain exposure and reputability with potential Generation X and Y customers.

• Washington Mutual - Foundation for Early Learning, Wamoola for Schools
  In April of 2003 Washington Mutual unveiled a new ad campaign aimed at young home buyers that attempted to show how they can "simplify the home buying process". This particular campaign incorporated television, radio, newspaper and billboard advertisements.   Washington Mutual also contributes to organizations like the Foundation for Early Learning. Contributing to organizations like this allow Washington Mutual to gain exposure and credibility within a market of Gen X'ers who have young families with small children.   Washington Mutual also has a program called Wamoola for Schools . This program sets aside $1 for every new checking account opened during the year, and then distributes the funds to local schools. Washington Mutual is also one of the only major banks with a no-surcharge policy, where it allows anyone to use their ATM's without being surcharged. This policy is effective at targeting younger more technologically savvy customers primarily in the Generation X and Y segments.
• Bank of America - Student banking website section, LifeSmarts
  Bank of America has an entire section on their website devoted to student banking. This includes advice for students on how to pay for college as well as a college budget planner, a borrowing planner, and information about financial aid forms for parents beginning to save for their children's college fund. This section of the website also includes search tools for finding available and eligible college scholarships. Bank of America also offers programs that teach younger children and teenagers the values of saving money. The Bank sponsors a program called LifeSmarts trademarked by the National Coalition for Consumer Education. This LifeSmarts program is an online education tool. Other educational programs that Bank of America participates in include Financial Fitness for Life, Practical Money Skills, Financial Seminars and Credit Basics for college students, and Junior Achievement programs as well as others.
• ING Direct - Customer Cafés, Planet Orange
  ING Direct has a unique approach to the banking market that some customers might shy away from. Their approach is mainly to be an online bank that provides savings and investment accounts. The company does business online, by mail and by telephone. Their approach fits a number of the core values and delivery preferences that we have established about the Generation X and Y segments. ING Direct also offers cafés where customers can come in, talk to a representative about different savings options, surf the internet all while enjoying coffee and lattes. ING also has a program called Planet Orange that is used as a tool for helping children learn the values of saving money. In addition to Planet Orange, ING has a Kids Foundation that helps children in need, and supports the St. Cloud, MN Earth Day Half Marathon Festival.
• New York Life Investment Management LLC - CollegeSense Savings Plan
  NYLIM realizes that the Generation X market is concerned about saving for their children's college education, having learned a lesson from the lack of college savings by their Baby Boom generation parents. NYLIM is offering the CollegeSense 529 Higher Education Savings Plan in conjunction with Schoolhouse Capital LLC. This program allows families to save money for the future education expenses of their children on a tax-advantage basis. Through a survey of Gen X'ers done by MainStay, NYLIM found out that 58% of Gen X'ers polled are very concerned about saving for their children's college education. The study also showed that 26% of Gen X'ers felt that education costs would be out of reach by the time their children were ready for college. This MainStay survey also showed what some of the popular types of savings plans are. They included mutual funds (27%), separate account (21%), securities (20%), 529 plans (18%), and money market products (12%).

6 Strategies for Attracting Generations X and Y

Some other successful ways to market to the Gen X and Y segments include (1) targeting them early in their lives so that your institution has name recognition with them, and they then put your institution into their long term financial plans. (2) Focusing on service, as well as effective web site branding and providing compelling web based messaging is critical to attracting these folks because competent web services are required to keep them with you. (3) Education on the benefits of insured products is a method of approaching the Gen Y market, along with (4) marketing to their parents online considering the fact that these Gen Y'ers are teaching their parents about online services. (5) Remain sensitive to pricing and fees, realizing that this Gen Y segment is still a young generation of "poor college students." (6) Remain relationship focused because this group does not favor sales people. They want to feel that you respect their time, are there to meet their needs, and that any information you present them is personalized.

Conclusion

In summary, keep in mind that the Generation X and Y market segments make up a significant part of this country's population, and are beginning to settle into their place in society. This market can be ignored no longer, and establishing relationships with them early on will be a key to successfully keeping them loyal to you down the road. Banks need to start realizing that these younger market segments are where to turn, as the Boomer generation continues to age and shift into retirement age.