When it comes to financial services, as in so many other things, not all millennials are created equal, says Freddie Findlater - so a 'one size fits all' approach just is not going to work
‘Millennial' is fast becoming an overused term these days. As this group, comprised of 18 to 34 year olds, comes of age and takes on more financial responsibility, the financial services sector is scratching its head as to how best to capture it from a commercial point of view. So far though, this crusade has only achieved partial success.
If we as an industry are to come anywhere close to meeting the needs of this group, we need a deep understanding of millennials and their behaviour - both in terms of how they have been shaped by their environment, and what their expectations and obligations are for the future. We need to hear from the millennials, rather than their older counterparts.
Millennials have faced difficulties not experienced by their parents or their grandparents. They have grown up in the dark shadow of austerity, with the resulting insecure job prospects and low salaries. But many are also saddled with debt, particularly university debt, and are all too often shut out of the housing market as prices and other assets are propped up at artificially high levels. At the same time, the increasing cost of living has seen their often meagre incomes squeezed.
To provide a personal example, I, a millennial, graduated from university in 2008 with more than £25,000 of student debt. I was lucky enough to secure a job in financial services at the height of the financial crisis, but it paid just £18,000 a year, so there were not an awful lot of opportunities to squirrel money away. I could pay my rent, eat and go out every so often.
Recently, however, at the Pensions and Lifetime Savings Association Annual Conference, I met a 22-year-old lady, who spoke on a panel about how she has just left university with debt more than double my own. She led a university life no different to my own. Another millennial - only eight years my junior - but a very different challenge.
To add to their problems, millennials are increasingly being forced to shoulder the burden of pension savings themselves - defined benefit schemes outside the public sector are now all but closed to new joiners, while auto-enrolment with its current contribution levels of 2% is not going to be enough to plug the gap.
But while they face a similar backdrop of challenges, all millennials are not created equally. Ironically, the difficulties they have faced differentiating themselves in the professional world and achieving financial independence, together with the push towards technology, means this age group has rejected uniformity and appreciates a personalised approach in all areas of life.
Outside of financial services, this can be seen in the success of social media networks such as Instagram, which allow them to imprint their personalities online and promote their own ‘brand'.
In short, then, they value their individuality. So while the good news is that innovation in technology means we have barely touched the surface of what financial services can do for millennials, the financial services sector must first stop treating them as a ‘one size fits all' group.
In one key respect, however, millennials are all similar - they demand tailored, simple solutions to help them manage their finances effectively and, increasingly, on the move.
Technology will be a key factor in making this a reality but it is no panacea. What it can do is use data to create a profile of each millennial as an individual. Done correctly, this could lead to a highly sophisticated and personalised approach that could employ a number of strategies, including nudge tactics, budgeting tools, even wildly exotic ideas such as pre-prepared shopping baskets based on what the individual is willing or able to spend.
The result would be akin to a financial personal trainer, but the automation involved would enable it to be done on a much cheaper scale. At the recent Platforum conference, Moneybox - an app looking to encourage savings and investment - received some criticism around whether putting ‘loose change' into an ISA was a realistic way to close the savings gap.
Obviously in isolation, the answer is ‘probably not', but if your prospective user-base is staggering under the weight of £50,000 of university debt, it is one of the only realistic options available. Apps such as Moneybox and others are going a long way to driving engagement and interest in financial services with technology a key force behind them.
The financial services industry faces many challenges in its battle to engage with millennials. However, one thing is clear: the personalised approach, whether that is via human beings or through technology, is never going to go out of fashion.
Freddie Findlater is platform and investments expert at Bravura Solutions
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