Some people have more money in their bank accounts than ever before since the pandemic, while others have depleted their reserves and are struggling to make ends meet. For people who are able to save, how they do that is an important topic – especially for younger generations, who may find themselves in unstable employment situations and have less experience than older age groups.
The onus is on banks to meet the needs of young people, by empowering them with finance-focused knowledge and offering personalized products, services and experiences. By doing that effectively, financial institutions (FIs) can gain the trust of younger demographics, and will reap the rewards by fostering loyalty and retaining them as customers for years to come.
With COVID-19 and its impact came limited opportunities to spend, and as a result, some people were able to save more than usual. For example, British households had built up the second-highest level of savings on record by the end of March 2021, putting away an extra £190 billion during the lockdowns.
But the picture wasn’t necessarily as positive for more vulnerable members of society. Some research suggests that younger generations struggled financially and were forced to draw on their savings. A US survey by Bankrate revealed that millennials and Gen Zers took the biggest hit, with income disruptions disproportionately felt by younger workers.
Meanwhile, the UK’s Financial Conduct Authority (FCA) reported that younger adults aged 18-34 and the self-employed experienced the largest proportional increases in financial vulnerability – rising by more than 40%.
Despite these statistics, it’s important to proceed with caution: generalizing within and between demographics is risky. Furthermore, opinions vary around diminishing savings, with sources like Aldermore Bank reporting opposing data to Bankrate and the FCA.
Given these uncertain times, there’s an underlying movement by younger people to take control of their finances, expand their knowledge and be more proactive. In turn, they acquire a sense of security and are better equipped to achieve their targets, whether that’s budgeting more effectively, investing, building up a rainy-day nest egg, or saving for a mortgage deposit.
Meanwhile, the pandemic’s impact has shocked the young into a mentality of economic prudence, with many saying they need to be more financially mindful than pre-Covid. Indeed, Schroder’s 2021 Global Investor Study highlights that people aged 18-37 are more likely to save (52%) than older generations.
There’s also the wider economic context to consider: rising inflation coupled with low savings rates. People are losing value on their savings in real terms, but potentially higher-return alternatives like investing in shares are viewed as too risky by most. The spiraling cost of living is also taking a toll: many individuals have less money to put away each month.
National governments can assist, by incentivizing saving. For example, the UK’s Help to Save scheme entitles low-income individuals to a 50 pence bonus for every £1 they save over four years.
Banks and financial institutions have a more powerful part to play, by helping improve financial literacy – knowledge and skills that are seen as increasingly important. By arming younger customers with information on products, services and terms like debt management, they’re better able to achieve money-related goals and future-proof their funds.
In Deloitte’s 2021 Digital Banking Survey, about one-third of Gen Zers and millennials said they’d use mobile apps more if educational resources were available. Similarly, Laura Parr – Strategy and Insights Manager of Financial Services for Google Australia & New Zealand – found that engaging and credible online video resonates with young people, helping them get into better habits and save money.
Banks can assist younger cohorts in other ways too, by offering personal finance management (PFM) tools – digital apps that leverage open banking and data-driven analytics to collate and store financial information. These platforms give young people a comprehensive picture of their financial health, making money management easier.
PFM solutions also help the young take ownership of their finances, by providing personalized and actionable real-time insights alongside tailored advice that caters to individual needs.
Financially literate young customers with the ability to monitor their money also need high-quality, intuitive and user-friendly online deposits and savings solutions. As part of that, banks must enhance the digital banking experience. It’s about building:
- Humanized, empathetic and bespoke online interactions
- Digital channels that provide high-touch services like financial advice
- Seamless interconnected and intelligent experiences across channels
- Tailored solutions for gig economy workers and the sporadic nature of the sector
- Innovative offerings like automated spending insights
By providing these, banks make managing and saving money easier, especially for younger generations who are more open to relationships with digital-only banks. Indeed, Deloitte’s findings show that 28% of millennials and 20% of Gen Zers are likely or very likely to open an account with online-only banks, compared to just 6% of boomers.
Given millennials and Gen Zers comprise over 50% of the global population, it makes sense that FIs should focus on wooing these demographics, by aligning themselves with their values. As more Gen Zers reach working age, this will become all the more important.
By ensuring these financially powerful groups feel confident banking with them, FIs can gain their trust, custom and loyalty. To do that, banks need to engage better with young people, adapt to serve them more effectively, and communicate with consistency, honesty and transparency.
Working with a trusted partner like Sopra Banking can help financial institutions improve their deposits and savings offerings. Our flexible and secure solution aggregates customers’ accounts, providing a 360-degree view of their finances. Real-time core processing facilitates personalized offers and Instant Payments, helping people manage their accounts with speed and ease, in multiple currencies.
From a bank’s perspective, our feature-rich account management platform allows cloud, hybrid and on-premise deployment, and adapts to market demands like regulatory changes. Moreover, the data-driven system gleans valuable insights into customer behavior that can inform business strategy and enhance the digital experience.
Our product suite also includes a robust and secure open banking platform, allowing banks to tap into PFM tools and offer customized services, helping improve the financial well-being of their customers.