Reinventing Relationship Banking for Millennials and Generation Z

The SigFig Team

Millennials and Generation Z: The New Generations for Financial Advice and Guidance

With over 139.2 million people, Millennials (1980-2000) and Generation Z (1995-2015) increasingly dominate the US population. They will soon become the prominent consumers and highest income earners that support financial institutions. These generations already hold a spending power of $3 trillion. By 2030, total consumption growth is projected to average 2.5%, up from 1.7% in 2018. The exponential growth of inherited and earned wealth within these two upcoming generations will create a demand for accessible and personalized financial guidance.

However, changing demographics and consumer preferences mean that information gathering and financial advice delivery must be re-imagined with technology at the center. So what does that mean for financial institutions, and how banks, credit unions, and other firms best meet these new generational expectations?

How Millennials & Generation Z Think About Their Financial Situations

While the older side of Gen Z is only beginning to earn income, 56% have already spoken to their parents about saving accounts, and 45% plan to save for retirement by their 20s. However, Gen Z’s budding curiosity in making significant financial decisions is hindered by the quality of their knowledge. According to a study conducted by Northwestern Mutual, only 13% of Gen Z consider themselves financially responsible, and 57% are unsure about their savings.

This uncertainty will prompt Gen Z to seek out other means of education. Data collected by Experian have shown that 43% want to learn how to properly save, 38% want to learn how to manage their expenses, and 36% want to learn how to file their taxes.

Millennials are also no strangers to their financial knowledge insecurity. The National Financial Capability Study shows that only 16% of millennials qualify as financially confident, yet the average millennial has about $27,251 in non-mortgage debt, and homeowners have around $232,372 in mortgage balance. The rapidly increasing debts and uncertainty have Millennials seeking out ways to learn how to better manage their finances.

Yet, even with the rising demand for more financial guidance, where can Gen Z and Millennials turn for reliable information? High schools and colleges still lag behind in financial literacy education, with only 36% of Gen Z having taken a class on financial well-being.

The apparent gap of guidance could create a predicament for financial institutions: if customers are unable to communicate their needs, invest irresponsibly, or are hesitant to open new accounts, financial institutions will struggle to support them. But, this gap is also a significant opportunity.

Targeted financial advice given by institutions increases customer satisfaction by 229 points, with customers acting on the suggestions 69% of the time. Large national banks tend to lead in diverse advice satisfaction ratings. It is likely that without acknowledging customers’ wants for personalized and streamlined financial guidance, competing against large banks will be increasingly difficult.

To a generation used to speed and convenience, financial institutions that rely heavily on in-person, branch-based experiences can feel outdated. Therefore, the key to connecting with these maturing generations falls in just how accurately institutions can quickly direct users to a relevant advisor or product, and adapt methods of service.

Especially with the rise of direct to consumer firms, such as Robinhood and Wealthfront, traditional banks find themselves under mounting pressure to compete. 56% of young consumers report a willingness to switch to a FinTech like the ones listed above if they released banking solutions. Whichever side Millennials and Gen Z eventually settle on will dictate where the finance industry will flourish. Therefore, it is crucial for traditional banks and credit unions to foster these early connections by revising their methods of interaction and connecting with consumers.

Digital Natives Prioritize Digital Advice and Technology-Enabled Relationship Banking

But how do you appeal to a generation not inclined to wait in long lines at branches? If we examine what Generation Z and Millennials are used to in their everyday life, it’s convenient access and a seamless integration of a digital platform. Even as digital natives, it’s a common misconception that every service brought to these generations must be fully digital. Instead, digitalization is meant to support human interactions, not replace them. Human based services still play an important role, but it is the question of how these interactions are established and facilitated that will need to involve a digital incorporation.

Providing a digital experience caters to their need for instant access to information regardless of their schedule. The resulting flexibility and reliability mean that whether on a cellphone, iPad, or laptop, consumers can receive guidance whenever or wherever they are most comfortable. They are able to be connected to an appropriate advisor without the hassle of long waits at branches, and instead can streamline their experiences online.

Digitalization also brings mutual benefits for financial companies, including increased efficiency, stronger customer connections, and more informed customers who are primed to engage.

Younger Customers Want Their Bank to Learn About Their Needs Proactively

At SigFig, we recognized the need to replace the tedious task of identifying needs by creating online dynamic journeys and financial health assessments. By equipping frontline sales and service staff with knowledge of what the customer is seeking, advisors can focus their limited time on offering specialized solutions to provide maximum value to the customer and growth to the bank.

When customers understand their future goals and current needs, and are better directed to the relevant products & services that align with their priorities, they make better financial decisions. Smarter spending habits, increased saving initiatives, and decreased debts all result in a stabler customer bank relationship with the next generation of high net worth bank clients.

Financial Personalization is Key to Success

The average Millennial and Gen Z only care about personally relevant financial information, so it’s no surprise that according to an Oracle survey, consumers under 30 have listed personalization as a critical factor when considering their future bank providers. Younger consumers value a bank’s investment in helping them reach their specific goals by accurately identifying, educating, and catering to their needs.

Websites and apps are the preferred methods of information gathering, with Gen Z 25% more willing to provide personal information to get a better experience. However, these sites must be personalized, as 46% of Gen Z would stop using a site if it can’t predict and cater to their wants.

Needless to say, the ability to efficiently identify a customer’s personal wants will become crucial in appealing to the new generations. However, it doesn’t have to be a difficult task, especially with the help of digital technology.

How to Determine Customer Needs at Scale

At SigFig, we build technology platforms designed for a digital-first world of banking that prioritizes close customer relationships. Though we’ve long been known for our digital wealth management platforms, built on award-winning robo-advisory technology, we’ve expanded to focus on the new frontier in relationship-based banking: digital needs discovery.

To reach Gen Z and Millenials (and other segments, too), we’ve built Atlas, a product bankers use to uncover customer needs at scale.

We’ve found through our partners that on average, the American consumer has 5.6 unmet financial needs at any moment in time. Atlas is able to target and identify those wants without the need for a specialized advisor to be actively present. Instead, we give back that time to promote higher-quality customer conversations that focus on pairing services with specific needs.

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