Do you know your members' "traditional" loan product needs as well as you think you do?
While a number of credit unions employ sophisticated models and tools to help pinpoint the most relevant products for each individual member, many others rely more on experience and intuition, augmented by readily available data such as member demographics.
A common member demographic that is used for market targeting is age bracket. Age can often be a useful indicator of what kinds of loan products a member may or may not need: for example, members in their 20s typically don't need (or are unable to qualify for) HELOC's, while members in their 60s already have all the mortgages and credit cards they need and may not be good targets for campaigns. Right?
Not So Fast
If your credit union is relying on such assumptions in your marketing strategies, it may be time to revisit those assumptions. TransUnion recently completed a study looking at the loan wallet share of credit union members in different age tiers, from 20s through 60s and above, and how that loan wallet share has shifted from the pre-recession period to today. Many of the results were surprising and may challenge your long-standing assumptions.
Members in their 20s are in fact deferring taking on mortgages, or have been precluded from doing so by conservative underwriting standards. The net effect is that the share of the total loan "wallet" composed of mortgages for that age bracket has dropped nearly 30% since 2005, while at the same time the share held by student loans has nearly tripled. Demand for and access to mortgages has clearly dropped among members age 20 to 29, replaced (and potentially crowded out) by skyrocketing student loan debt.
But the news for 20-something members isn't all bad: the auto loan share of wallet has steadily grown since the recession, while demand for credit cards has rebounded over the past several years. Reports that credit card demand is dead among members in their 20's may be premature. If you have moved away from marketing to younger members for card and auto products in recent years, think again — there may be stronger demand there for these products than you think.
At the other end of the spectrum, older members have also seen a surprising shift in behavior, which may be good news or concerning, depending on your perspective. Average total debt balances for members in their 60's and above has increased since 2009 — the only age tier in the study that did not see a decline in average debt per member. Further, every loan type has seen growth in average balances per member in their 60s in recent years.
We traditionally think of members who are approaching or already in their retirement years as focused on paying off debt, not opening new loans. That is no longer the case: not only are more seniors carrying mortgages today than in 2009, but the average mortgage balance levels are increasing as well.
There may be several reasons for older members to be carrying more and larger mortgages. For example, they may need to borrow against their homes to supplement their own incomes as investment returns on retirement savings remain low, or they may be using mortgage proceeds to help pay the bills for children and grandchildren who continue to be impacted by a less-than-robust economic recovery.
Another Unexpected Increase
Not only are older members increasing their mortgage borrowings, but they are also increasing their auto loan debt — average balance per member is up over 8% since 2009. Credit card usage has also increased for this age bracket, with a higher percentage of members aged 60-plus having credit cards today than in 2009, while average card debt per member has increased over the past two years. Even student loan debt is on the rise for seniors, as many are likely taking out student loan debt to help pay for college tuition for their kids and grandkids.
The good news for credit unions is that this strong demand for increased borrowing by seniors presents opportunities for growth to credit unions who may not think of older members as being their best focus for marketing efforts. The concern this also raises is, will increased borrowing levels by members in their 60s and older lead to higher default rates in coming years as some members struggle to service these higher debt levels on fixed retirement incomes? This development will certainly bear watching and diligence by credit unions over the next several years.
In short, the borrowing behaviors and loan demand by members in different age tiers have seen profound shifts since the recession, presenting both opportunities and challenges for credit unions. The better you understand these shifts and adjust your lending strategies to respond, the better positioned your credit union will be to take advantage of unexpected growth opportunities and serve your members effectively.
Charlie Wise is vice president in TransUnion's Innovative Solutions Group.