Memo to banks hoping to land 20-somethings as new customers: It's time for a makeover.
Members of generation Y, the group of Americans currently in their late teens to early 30s, have watched as the housing market collapsed, the stock market faltered, and financial institutions received massive government loans to stay afloat. As a result, many of them are skeptical about handing over their hard-earned money to traditional banks. More than 1 in 5 20-somethings report a decreased trust level in banks over the past year, according to a recent survey by the research and advisory firm Aite Group.
To avoid alienating these up-and-coming young customers, some financial institutions are changing the way they speak to them. Traditional bank marketing, which involves blasting off slews of product offers and hoping some hit their mark, only further erodes their trust, says Ron Shevlin, senior analyst at Aite. "People feel like they're getting bombarded with irrelevant offers," he says. That one-size-fits-all approach is being replaced with extensive social media campaigns featuring members of gen Y as spokespeople and customized offers that focus on the new frugal mind-set.
The Texas Dow Employees Credit Union hosts an annual contest for a gen Y spokesperson who finds free things to do around Texas and shares them on the campaign's website, www.youngfreetexas.com. (The campaign started at a Canadian credit union and has since made its way south.) Armed with a $30,000 annual salary, a Toyota Prius, a MacBook, and a high-definition video camera, last year's winner, DeAndré Upshaw, a recent graduate of Baylor University, posted videos and blog entries on financial literacy, budgeting, and other topics relevant to his peers. Website visitors can click through to more information on the credit union's offerings, but advertising products is not the focus of the site.
The campaign seems to be working. Young and Free Texas's Trey Reeme says that in the past two years, the 18-to-25-year-old demographic has been its fastest-growing segment. "I think [the campaign] builds trust," says Reeme, who is 29. Upshaw, Reeme adds, seems more like a friend than a banker, and the annual contest sends the message, "We want to learn from you, as well as help you—not just take your money."
That kind of outreach works, says Kit Yarrow, coauthor of Gen BuY: How Tweens, Teens, and Twenty-Somethings Are Revolutionizing Retail, because these relatively new consumers like it when companies treat them like the smart, informed consumers that they are, and they are wary at the first sign that they are being manipulated. "Gen Y likes to feel influence and power. They like to feel that companies are serving them and really bristle at the idea of being taken advantage of," Yarrow says.
The financial crisis has also underscored gen Y's interest in being savvy consumers when it comes to their finances. An October Scottrade survey found that one third of respondents ages 18 to 26 said they've learned more about how the economy works and have become more familiar with their own personal finance situation in the past year. Some 37 percent said they are now doing more research before making investments—a greater proportion than older age groups.
Other financial institutions have tried to capitalize on that interest, but they aren't always successful. Some large banks run blogs, but they aren't focused enough on gen Y interests to generate any traction among that group, says Shevlin. He adds that a lot of banks concentrate on mobile banking—the integration of banking services with cellphones, social networking accounts, and PDAs, for example—to reach young consumers. "They believe gen Y-ers want to do everything on a cellphone, but that doesn't solve the problems of distrust," he says.
In fact, excessive dependence on social networking sites can be a turnoff. "It's almost obnoxious to me," says Andrew Fereday, 28, an insurance broker in Chicago and frequent Facebook user. "That's definitely not the way to reach me."