Don't throw the baby boomer out with the bathwater
Millennials are — without question — the most written about generation since baby boomers. The way they work, how they spend their money, even their technology habits have been talked about and obsessed over. And for good reason: Expanding services to that fickle, usage-economy generation is a critical component of the future viability of the credit union industry.
But hold on for just a moment.
In the rush to cater to millennials and the very large slice of the household wealth pie they will hold in the future (today they represent 24% of credit union members), credit unions should not abandon the ones who currently hold the largest slice of that pie: boomers and seniors.
In fact, the data show a maturing and blended credit union membership profile: The average age of a member is 47, and over half of credit union members are now 53 or older – practically the definition of baby boomers (54 – 75). What’s more, boomers hold more than 80% of personal financial assets in the U.S., and will continue to drive consumer spending for the next five to 10 years.
They’re also living and staying in the workforce longer. By 2026, 26% of men and 18% of women 65 and older will be on the payroll. While it may be conventional wisdom that these consumers are past their prime borrowing years, the data show a shifting pattern of behavior that suggests their financial paths are not set in stone.
Boomers are active, engaged earners who control much wealth — and are definitely not ready for the rocking chair. Indeed, there are a surprising number of similarities between boomers and their millennial offspring that credit unions can leverage in offering services.
Most boomers have been through a lifetime of ownership, and as they head toward retirement it becomes less of a priority to own things, especially things that require extensive and expensive maintenance. Flexibility is more important, so committing to a long-term purchase seems less attractive.
This, of course, is also typical of millennials who are driving the usage-based economy. Millennials’ desire for experience over ownership is increasingly important to “bucket list” seniors as well. Like millennials, boomers are part of a trend of opting to rent a home rather than buy. In fact, more than 5 million baby boomers across the nation are expected to rent their next home by 2020.
While statistically boomers have a lot of wealth, it’s not evenly distributed. Some live on fixed incomes, while others are still trying to build a retirement account. Like many millennials who are struggling to pay off student loans, seniors find lower, predictable monthly payments a welcome boon.
As these two demographics focus less on ownership, their propensity to take out loans may naturally decrease, which could spell disaster for those financial institutions that count on auto and house loans.
The good news is that there’s an option that caters to these commitment-phobic cohorts and offers credit unions a product that is positive for the bottom line: vehicle leasing.
Today, leasing is an increasingly powerful option in the auto landscape, especially with the average cost of a new vehicle at an all-time high. No surprise, then, that vehicle leasing has doubled since 2010, and that today nearly one of every three new vehicles is leased, with 5 million units predicted to be leased in 2019.
Given the size of the boomer and beyond segment, and the large percentage of credit union memberships that they represent, vehicle leasing offers a significant member expansion and service enhancement opportunity for credit unions — one that also holds great appeal to that other soon-to-be domineering demographic. From lower monthly payments to continual warranty coverage, vehicle leasing offers day-to-day practical benefits that fit the lifestyle and budget needs of both segments.
The benefits extend to credit unions: For starters, there’s the portfolio plus of being able to offer a financial product desired by nearly a third of the average credit union’s most important demographics. And don’t forget about the potential to increase membership while better serving existing members. Other key benefits include increased yield, minimal risk, lower reserves per CECL and easy implementation.
Your portfolio needs boomers. And it needs millennials. Both are crucial to present day business success as well as future growth plans. As such, credit unions should focus on finding alignment between the cohorts and offer products that meet their lifestyle needs and budget realities.
A good place to start is with vehicle leasing — a financial product that both boomers and millennials can get behind.