Millennial Marketing Lessons Every Financial Services Giant Will Need

May 9 2014, 2:07pm CDT | by

This article is by Jeff Fromm and Jason Parks, executive VPs at independent advertising agency Barkley. Fromm is also co-author of the book “Marketing to Millennials: Reach the Largest and Most Influential Generation of Consumers Ever.”

Should brands like State Farm, Allstate, Prudential and American Express target a generation that’s been stamped with the “irresponsible” label? Yes!

In fact, if they don’t start immediately then they will likely struggle to thrive. The secret sauce, in part, lies in how they grew up; and it just might make them the most willing financial planning customer in several generations.

Who are millennials?

A quick overview of the facts: there are 80 million millennials in the U.S., they are early adopters of new digital, social and mobile tools and strive for a healthy lifestyle. Yet, perhaps the most important stat is this: there are 40 million millennials who have children, and each day 10,000 millennial moms over the age of 25 give birth. It’s no secret that parenthood changes many things. It’s a right of passage that gets young mothers and fathers thinking about things like wills, insurance and retirement for the first time in their lives. While this may be an obvious point, that obviousness seems to be lost on much of society. Smart financial institutions should buck conventional wisdom and acknowledge that everyone gets older—even millennials.

How do millennials view personal finance?

Before we figure out how millennials spend money, we first need to understand how much money they actually have to spend. While it’s true that millennials spend $1.3 to $1.7 trillion in the economy every year, they are at a serious wealth disadvantage. And it’s not simply because they are young and just starting their careers. Millennials are making less money than previous generations were at the same age.

According to analyses by the Organization for Co-operation and Development and the McKinsey Global Analysis Institute, 41 percent of Americans age 25 to 34 have tertiary education, meaning education beyond high school—a rate identical to the leading edge of the boomer generation, people age 55 to 64.

But when the boomers got their educations, that 41 percent figure put the U.S. at number three in the world in post-secondary attendance—today we’re number 16, far behind South Korea’s 63 percent.

The flatness in overall education is taking a toll: according to the public policy think tank Demos, 25- to 34-year-old male high school graduates made an average of $31,000 in 2010, compared to $41,000 for the same group in 1980 (measured in 2010 dollars)—keeping in mind that wages have been stagnant in the few years since.

Combine that with the fact that millennials are saddled with more college debt ($1.1 trillion) than Boomers could even dream of bearing, it makes for a choppy financial picture.

With these facts in mind, you can see why millennials are hesitant to take financial risks. They know the value of a dollar, but do not pursue careers with earning potential as the only filter.

How do millennials spend money?

Think millennials financially overextend themselves in order to reach for high-end brands? Think again. In our extensive study of millennials, we find this generation will trade up for brands that matter but trade down when brand value is weak. That trend is accentuated among millennial parents./>/>

Before they had children, millennials over-indexed against the U.S. population with brands including H&M, Apple, Macy’s and Sephora. After they become parents, those brands not only drop on the list, they disappear. Instead, millennial parents over-index against the U.S. population for brands including Dollar General, Kohl’s, Lowe’s, Wal-Mart and Value City. Put another way, millennial parents favor Kohl’s and Wal-Mart more than Generation X and Baby Boomers. A world where millennials eschew name brands in favor of Dollar General? Parenthood will do that to you.

According to our survey, millennial parents say they are willing to trade up to get more quality on just four things: appliances, automobiles, digital devices (despite falling significantly) and groceries.

According to a recent study by UBS, millennials are more likely than other generations to believe that working hard and saving/living frugally are the ways to achieve success.

Cars and homes

How will millennials approach two of the bigger investments they will ever make?

According to a study from the AAA Foundation for Traffic Study, from 2007 to 2011, the number of cars purchased by people age 18 to 34 fell almost 30 percent. While millennials seek out alternate means of transportation like ride shares or telecommuting, it’s parenthood that will change that trend. Just ask Ford, which enjoyed an 80 percent increase in sales among that same age group in the first half of 2013, when compared to the same period in 2009 (the industry overall increased 35 percent). Young millennials may not have been able to afford cars, but as parents, they will quickly assume their rightful roles as chauffeurs.

While millennials will eventually fall in line for cars, it remains to be seen if they will do the same for homeownership. In fact, a just-released report from the U.S. Census Bureau showed that homeownership among millennials is the lowest of any young generation since the Housing Vacancy Survey began in 1982. Millennial homeownership rates dropped to 36.2% in 2014. So far, this data shows no sign of budging, owing to millennials’ fear of making large financial commitments and high unemployment rates.

How do financial brands attract millennials?

While millennials may not have a large discretionary funds today, they happen to be one of the most pragmatic generations since those that experienced the Great Depression. They value saving as it enables them to afford experiences.

The oldest millennials became young adults around 1999. In that time, they have experienced the dot-com bust, September 11th and large banking and housing crises. Further, the Iraq and Afghanistan wars were largely fought by millennials. It’s these factors that influence their risk tolerance, yet they are willing to think non-traditionally.

This unique mix makes millennials a compelling customer for financial services and insurance companies. Let’s take a look at specific areas of opportunity for these brands:

5 Ways to Win with Millennials:

1)     Embrace disruptive schemas that align to millennial values

2)     Create tools that simplify millennials’ life and financial planning needs

3)     Act in a more authentic and transparent way

4)     Curate content that helps millennials make more informed decisions/>/>

5)     Engage millennials as your brand partner by allowing them to co-create new products, customer delivery channels and more

 
 

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