Author: Josh Bentley
Could digital banking solutions help millennials manage their money better?
Between the autumn of 2007 and the autumn of 2012, millennials across the UK received an unexpected, prolonged and seemingly unjust lesson in elementary economics.
Hedonistic adolescents throughout the country witnessed first-hand what happens when credit dries up, mortgage rates rise and wages stagnate. Unsurprisingly, a recent study published by Finextra suggests that memories of the credit crunch and experience of subsequent austerity measures have left a lasting scar on the next generation of adults, with many seeking to improve their own financial knowledge due to distrust in the banking system.
“We are disillusioned with banking. If a brand came to me and said they wanted to be a bank, I would be suspicious.”- 21 year old panellist (Finextra, ‘The Disruption Opportunity in Banking’)
Cast your minds back to pre-credit crunch television and it was nothing more than a billboard for the insatiability of human desires, with programmes glamorising the excesses afforded by the bonus culture and lifestyle documentaries flaunting the opulence of the Mediterranean property market. There was a clear appetite for spending in the UK and consumers here spent more on credit cards than any other EU nation during this period. But now, things are very different. Yes, household debt in the UK remains incredibly high, but a prevailing wind of caution continues to sweep across society and our television screens and entertainment channels are full of information telling us how to save, rather than how to spend. It’s certainly no coincidence that moneysavingsexpert.com experienced massive growth post 2008 and was subject to a high profile acquisition in 2012.
Understanding the dangers of money mismanagement
To put it another way, 240 years ago Adam Smith proclaimed that we are all self-interested rational economic actors who seek to maximise our own wealth, and between 2007 and 2012, we realised that debt fuelled consumerism had no place in this paradigm.
So where do millennials fit into all of this? In a sense, millennials are the blameless victims, too young and naive to impact events, but old enough and wise enough to understand the adverse consequences of financial mismanagement. And with Fidelity International estimating that inflation rates are three times higher for 16-24 year olds than pensioners, who can blame them for feeling hard done by?
The feeling of vulnerability lingers on and it has been the millennial generation who have spearheaded the ‘wellness’ and ‘wellbeing’ phenomenon currently sweeping across society. This post credit-crunch movement has seen the number of young people binge drinking reduce dramatically (less than 50% of 16-24 year olds drink alcohol every week, compared to 66% of 45-64 year olds), and recent teen pregnancy figures are half of those experienced in the early 2000’s. Let’s also not forget the massive growth in the health and fitness industry, which saw consumer spending on gym memberships increase by 44% in one year!
Millennials and financial education
However, perhaps the most surprising social trend amongst millennials is their newfound appetite for education, and in particular, financial education. ING has discovered that over 80% of young people are in favour of more financial education in schools and PWC estimates that 34% of millennials worry about their financials situation. Interestingly, Experian has recently found that 45% of 18-24 year olds save ¼ of their monthly income (compared to only 34% of 35-55 years olds), illustrating how today’s youth has a strong desire to be money savvy.
The financial community is certainly not blind to the fact that there is both an appetite and a need for financial education amongst young people. Campaigns such as Barclay’s LifeSkills in the UK and Understanding Credit by SallieMae & FICO in the US have gained good traction. But it is the Fintech community who hold the key to unlocking the true potential of this lucrative engagement tool. 45% of millennials say technology is important in their personal financial management strategy and a study by Scratch found that 50% of millennials are counting on tech start-ups to overhaul the financial industry and rebuild the consumer trust lost by retail banks. Indeed, with UK financial institutions featuring bottom of Edelman’s 2015 ‘trust barometer,’ the stage looks set for an ambitious fintech to deliver products and services targeted at millennials that embrace an ‘on-the job learning’ approach to bank account management.
“PayPal is so easy, it’s great. I figured out how it worked using tutorials in the app.”- 21 year old panellist (Finextra, ‘The Disruption Opportunity in Banking’)
The easiest way to unlock the commercial potential of financial education is to address the current asymmetrical nature of millennial banking habits. This is best illustrated by the fact that young people are voicing high levels of concern andconscientiousness, however, a staggering 34% of them are too scared to check there own bank balance! Worse still, 25% of 18-24 year olds have also experienced running out of money before payday (and presumably found themselves running off to the Bank of Mum & Dad). Digital technology can be used to notify millennials of the most important aspects of personal financial management and can ‘hold their hand’ through daily transactions and the monthly banking cycle.
User-friendly digital banking
Digital also holds the potential to combine analytics, real-time data and third party involvement to offer a tailored educational journey, addressing opportunities and threats pertinent to an individual. All the evidence suggests there is a gap in the market with technology savvy millennials crying out for a banking prospect that can help them grapple with the complexities of financial management. They are simply waiting patiently for a trustworthy user-friendly digital offering to attempt to fill this void.
The term Mobile Wallet has been a ‘buzz word’ for some time. With a broad range of use cases, it unsurprisingly can mean different things to different people.