How to Lend Millennials’ Money – and How Not To

By Robert McGarvey

A new study out of Transunion – Generation Revealed: Decoding Millennial Financial Health – is a goldmine of data for credit unions that are struggling to make sense of their Millennial members and prospects and are also struggling, in many cases, to find profits in serving them.

The excellent news is that Millennials want credit products. The bad news: guided by the borrowing habits of the prior generation, you probably are offering Millennials loans they don’t want.

There are good reasons to be struggling with Millennials (born 1980 – 1994). The Transunion data say that they are a generation different – sharply different from the Gen X group (1965-79) that preceded them. For instance: they carry far fewer credit cards than do Gen Xers.  Their participation in using bank credit cards is 22% less than Gen X.  They use private label credit cards 23% less.

Why? The Transunion study points out a blatant fact: Millennials, many of them, came of age in the economic downturn of the Great Recession. Notes Transunion: “As many Millennials were entering the workforce, they faced economic uncertainty during the Great Recession when the overall unemployment rate soared to nearly 10%. Consequently, Millennials aged 25 to 34 have a 5% lower median income than Gen X consumers at the same period of their lives.”

They also were hit by the CARD Act of 2009 which severely limited the ease of obtaining credit cards by those under 21 years of age.  Gen Xers, many of them, signed up for credit cards during their freshmen orientation.  Not so Millennials.  

Dodd Frank also made it harder to get mortgages.

Add those three facts together – a struggling economy, more stringent card issuance, much more stringent mortgage issuance – and it is obvious that Millennials would have a very different relationship to credit than Gen X.  

According to Transunion, they carry half as many credit cards in their wallets as Gen Xers did at the same age. They also have an average balance $11,000 less than did Gen Xers.

Then there are myths that inhibit offering the right loans to Millennials. For instance, many believe they are happy as renters with no desire to become homeowners.  Not so, says Transunion.  “While Millennials may delay home purchasing by a few years, 74% of Millennials who don’t already have a mortgage plan to purchase homes at some point.”  

A fact however: access to mortgages still lags for Millennials.  Thy want to be buyers but are struggling to make that happen.

Another myth: that Millennials don’t want to own cars.  Said Transunion: “the myth that Millennials don’t want to own a car is simply false. More than 80% of Millennials report owning or leasing a car.”  

In fact, Transunion says that Millennials are opening car loans between the ages of 21 and 34 at a 21% higher rate than Gen Xers.

Mark that as a key opportunity in pursuing Millennial loan business.

But there are other, surprising opportunities.  Such as personal loans. Said Transunion: “Millennials open more than twice as many personal loans as Gen X. This trend is likely driven by the emergence of online lenders creating digital experiences that provide more rapid access to personal loans.”

Read the last sentence again. It fingers where credit unions are leaving lots of business on the table.  Transunion loudly made the point more plainly: “More than 60% of Millennials with a personal loan report getting it from a bank or credit union.”  

That means 40% of this borrowing is by Millennials using non traditional lenders – often online operators who ask a few questions and if satisfied with the answers, speed off a personal loan. 

Also understand that where a Gen Xer might have taken a cash advance against a credit card, or maybe run up a balance on a traditional credit card, a Millennial, in many cases, will opt instead for a personal loan.

Is your credit union set up to handle this demand?

Fintech startups definitely are and daily there are new ones.  According to Transunion, “The FinTech sector, which principally acquires customers online, grew from just 2% of the personal loan market in 2009 to 24% by Q3 2016. Engaging through digital channels like social media has been an effective way to reach Millennial consumers.”

Who hasn’t seen the TV ads for these new breed lenders?  They are eating your lunch.

Bottomline: there are rich lending opportunities with Millennials. Maybe not so much mortgages.  Credit cards also offer dwindling potentials. But definitely car loans and, unquestionably, personal loans.  

Millennials are the future. They want to borrow money. Just offer than the kinds of loans they want, through the channels they use.