Generating Loans by Generation

February 2017: Vol. 40 No. 2
by Bryn C. Conway, MBA, CUDE

Baby boomers, Gen X and millennials have different lending needs and wants. Does your credit union have the right loan products—and the right marketing message—to appeal to each generation?

images of different generations of peopleRead just about any “About Us” page on a credit union’s website, and you’ll be told a story about how many decades ago a dedicated group of people came together to start a credit union to help members of their community save and borrow.

When credit unions began, we were the financial disruptors of the marketplace. Members would come to us to borrow money to finance cars and homes when no other traditional financial institution would lend to them.

Today, we often hear that credit unions aren’t relevant to younger generations. Credit union members are aging—the average age of a member is 48—and we’re struggling to find ways to keep from becoming a savings club where growth is stagnant. We need to get back to our bread and butter—lending to members!

To grow your loan portfolio, you need to lend successfully across the generations. Regardless of their generation—baby boomer, Gen X or millennial—your members are borrowing and buying much more than previous generations, and the key to success is to be relevant to each generation. Let’s take a look at each generation’s beliefs and perceptions, what lending products you should be marketing to them and the messaging each generation finds relevant.

Baby Boomers: The Optimists, Idealists and Individuals

The baby boomers, those individuals born between 1946 and 1964, are a generation characterized by optimism and individuals who want to put their own stamp on the world. Now between the ages of 52 and 70, boomers control 70 percent of the wealth in the U.S., have $7 trillion in buying power, and by the end of 2017 will control over 70 percent of the disposable income. Boomers are marching toward retirement as empty nesters, looking for simplification and wanting to experience all the adventures they missed when they were working and raising families. 

Though this generation is primed to continue to buy and borrow long into the next decade, marketers often write them off as being past their prime borrowing years. But boomers are the majority of your members, numbering over 75 million.

Plus, baby boomers are much more likely to borrow than generations before. Debt for adults between ages 50 and 80 has increased 60 percent in the last 12 years. Reasons for this may include: 1) the Great Recession hit some boomers’ retirement savings hard; they would rather leverage a monthly payment and contribute more to retirement rather than take a large amount out of their savings to make a purchase; and 2) some boomers borrowed against homes to help their children go to college, so again, they would rather manage a payment than sacrifice cash reserves for purchases.

The question becomes: Are you going to meet the needs of this generation or are you going to let all that purchasing power be financed elsewhere?

Top Boomer Products

Autos—Baby boomers came of age at the time when most Americans were having a love affair with their automobiles, when getting a driver’s license and having one’s own set of wheels symbolized freedom and independence. Boomers’ affinity for the car is still strong and will likely continue long into their retirements.

According to the American Marketing Association, boomers spend close to $90 billion a year on automobiles, 28 percent more than the younger generations combined. Create financing options that allow them to purchase the classic cars they like and the new cars they need. Baby boomers will continue to drive the vehicle part of your loan portfolio for years to come.

Home equity—Though baby boomers lost significant wealth in the Great Recession, the Progress in Lending Association reports that they still retain on average $200,000 in home equity. As many are looking to retire, pursue travel and relocate, this equity can be vital to their ability to pursue their goals. Market home equity to boomers and be specific with how your equity loans can help them live the life they want.

Homes—Boomers are estimated to spend over $1.9 trillion or more on home purchases in the next five years. That’s buying power that can’t be ignored! They may be looking to buy a house in the country or on the water, maybe both. As this generation is set to put their own stamp on retirement, make sure you impart that you are here to lend to them and that you have options to fit their needs.

MESSAGE: Promote the experience; forget the rate

Research suggests that baby boomers see themselves as a good 10 years younger than their actual age. The saying, “50 is the new 40”—you can thank the boomers for that! It is really important to understand the right messages and imagery to present to your baby boomer members because of this perception of themselves.

Boomers are vibrant, vigorous and vital. They take care of themselves, and this generation is not going into retirement wearing cardigans and slippers sitting in their paid-off homes as their parents might have done. For them, it’s about marketing the experience and their belief that they can still experience the world and put their own stamp on it.

Most of the time, rate, features and benefits are what we market when it comes to loans. However, recognize that even though in your surveys members might tell you that price is the reason they choose a product, for baby boomers, this is not the case. Henry Ford once said, “If I had asked people what they wanted, they would have said faster horses.” Although baby boomers may say that the rate is important, they want to think about the experience and how it will make them feel. They aren’t buying the convertible because it’s 1.5 percent APR; they are buying it because they want to feel the wind in their hair as they cruise down the highway. Be competitive in your pricing, but sell the experience to boomers and you’ll get their loans for the rest of their lives.

Generation X: The Skeptics, Realists and Independents

Generation X, those individuals born between 1965 and 1980, has repeatedly been told that they are the first generation in America likely to be worse off economically than their parents. Now ages 36 to 51, Gen Xers came of age during the recession of the early 1990s. 10 years later, just as they were getting their economic footing, the dotcom bubble burst. We often hear about millennials shackled with student debt; however, members of Gen X are still paying off their educations while raising families and caring for parents. On average, Gen X carries a debt load of $142,077 per person and 60 percent have more debt than someone the same age did in 2000. Forty percent of Gen Xers have children under the age of 18, and a quarter have parents who live with them.

The news for Gen X is not all bad. Gen X is considerably smaller than the boomers before and the millennials after them, numbering a mere 49 million—only 23 percent of the U.S. adult population. Seventy-seven percent of Gen X is gainfully employed and will have ample opportunity to earn and save more as the baby boomers exit the workforce. Credit unions should be courting Gen X like no other generation because its members are comfortable having loans. Their loan demand spans most lending products, and members of Gen X are entering their prime earning years.

Products for Gen X

Homes—Generation X has a median annual income of just under $105,000, and 27 percent are in the market to buy larger homes to accommodate their growing families. Gen X buys the most expensive homes of all homebuyers with a median purchase price of $263,000. Make sure they are financing these homes with you! Gen Xers know they need a bigger home, but are going to be skeptical about taking on a larger payment. Position your mortgages to provide options and solutions that help bring stability to Gen Xers’ financial lives.

Refinance—Gen Xers have loans. Lots of them, with balances, and you can be certain they are not all at the same financial institution­—Harland Clarke reports nearly 60 percent of Gen X is not brand loyal. Market refinance options to your Gen X members. Most won’t think of saving money by refinancing an auto loan or by refinancing their mortgage. Personalize the offer, make it relevant and ask for the business.

Any Loan Product—Homes and refinances are at the top of the list for targeting Gen Xers, but understand that their demand for any loan product is second only to millennials. They are buying cars, using credit cards and paying off student loans. This doesn’t mean that you should send them every loan offer you have, as you run the risk of not being relevant; instead, look at their credit reports and find ways to help them. Gen X will be borrowers for many decades to come.

MESSAGE: Transparency, advice and empathy

Messaging and marketing to Gen X is about being transparent. They don’t believe traditional promotional messages– it’s a skeptical generation, after all. Position a mortgage using the monthly payment or talk about options to put more money in their pockets. Members of Gen X need to feel that by saving money they can start to take control of their financial futures.

Of the three generations, Gen X is the least likely to believe in the “American Dream” and is also least likely to consult a financial advisor. This creates an opportunity for your credit union to bring the financial advice to Gen X. Do this with targeted relevant messaging. Position your credit union to be a financial partner and to help where Gen X needs it—prioritizing debt, having enough insurance and, ever-so-slowly, building savings.

Empathize and listen to what members of Gen X are telling you about their financial needs. For them, it’s about raising families and worrying about the present and the future. Communicate empathy when marketing your products and position yourself to help, not judge. They already know they have a tough road; your credit union can show them there is a way to take care of their present and their future.

Millennials: The Diverse, Collaborative and Connected

The millennials, those individuals born between 1981 and 1996, are so desired and discussed by every sector of the economy—with good reason. This generation is huge—nearly 42 percent of the U.S. adult population! Plus, they contribute more than $1.3 trillion in spending annually.

Millennials, now ages 20 to 35, are the most diverse and highly educated generation in history.

However, they paid dearly for that distinction. Six in 10 millennials have student debt, with an average student loan balance of $25,500. Their debt and difficulty finding a job when they left college have meant the prolonging of milestones. The average age of marriage for a millennial is 27.9, and millennials are waiting until age 33 to buy their first homes.

Ten years ago, as the first millennials were leaving college, figuring out what type of loans to market to a millennial was nearly impossible. Millennials were believed to support a sharing economy so they would not buy cars; they lived at home with mom and dad, so they had no desire to be a first-time homebuyer; and most had experienced the crushing reality of student loan debt so they weren’t interested in a credit card. Today, as members of this generation age, their economic prospects as well as credit unions’ ability to fund their pent-up lending demand is improving greatly. You should be working hard to be millennials’ lender of choice.

Products For Millennials

Autos—Five years ago, millennials accounted for just 14 percent of new car purchases. Today it’s over 25 percent. In the next 12 months, 23 percent of millennials expect to purchase or lease an automobile, and 61 percent plan to do it in three years. The even better news is that 60 percent of the younger millennials and 35 percent of those in the older segment would rather apply for a loan online vs. through a dealership. Market auto loans to millennials and make it super easy to borrow from you online.

Homes—One in 10 millennials live at home with their parents, and four in 10 rent. Millennials account for 32 percent of homebuyers and 68 percent of first-time homebuyers. Plus, because their down payments are lower, their mortgages are larger. A full 70 percent of millennials would like to purchase their first home in the next five years. Develop first-time homebuyer programs that provide flexible down payment options and send information about those programs to millennials’ parents. They can help make the referral to the credit union and finally achieve their dream of the empty nest!

Credit cards—Millennials don’t use cash. Only 23 percent carry cash, and for those who do, that balance is on average $5 a week. The rest is being filled in by plastic or digital payment. Millennials accounted for 27 percent of recently opened credit cards. Market credit cards to millennials, but make sure you get them a rewards card. They expect to be rewarded for choosing your credit card.

MESSAGE: Recommendations, content and referrals

Millennials are less likely to be influenced by traditional media than other generations. They are comfortable interacting with companies online, with 66 percent following brands on social media. Millennials are also more likely to view companies using social media as trustworthy rather than those using traditional means. Get your products reviewed and encourage recommendations in all channels.

Though millennials are very interested in the digital space, make sure your content is relevant, concise and easily understandable. Millennials report that their financial institution provides content, but only 20 percent find it interesting with most feeling it’s too salesy, boring, long or hard to understand. What millennials would like to see is articles from experts, information on how to get through a financial crisis and non-financial content imparting local information.

Millennials love their communities—whether online or in-person. According to Harland Clarke, over 90 percent of millennials have bought a product after hearing about it from family or friends. Millennials trust the recommendations from their friends and family much more so than traditional marketing. Use the referral power of your current members to reach millennials.

Though millennials are often the focus, don’t overlook the lending power of baby boomers and Gen X. Both generations offer great potential for lending growth for years to come and can likely be your ally to help turn millennial’s attention your way. Let’s get back to doing what we do best—helping members borrow in ways that are as unique and dynamic as the many generations we serve.

Bryn C. Conway, MBA, CUDE, principal of BC Consulting, LLC, based in the Washington D.C. area, is a longtime member of the credit union community and helps credit unions define their brands, develop their leaders and grow their market share.