The much-maligned Millennial demographic often gets dinged for their different approach to financial matters. With the advent of online payment methods, many in this generation rarely set foot in a bank or credit union. They don’t write checks; they demand direct deposit; and they transfer funds among friends electronically. So when it comes to financing a vehicle this group is often lacking connections to lenders. Unlike their parents, or grandparents, they don’t have a “banker.”
Recent research fielded by EFG Companies queried more than 500 Millennials across the U.S. about their banking habits and preferences. 68 percent utilize a traditional bank, nearly 26 percent use a credit union, and 6 percent do not use a bank at all. When asked about where they would go to get money for a vehicle, more than 30 percent said they would start with the dealership, and 12 percent said they had no idea. More striking, more than 60 percent had no idea of the benefits of financing through a credit union. This knowledge gap only complicates an otherwise sketchy financial situation for many Millennials.
According to a PwC survey, only 24 percent of Millennials surveyed could demonstrate basic financial literacy. Of those who have begun saving for retirement, a third said they were “not sure” how their money was invested. As a group, their financial situations are not strong, having launched their lives later, strapped with student loan or other debt, with lower or missing FICO scores, and a history of postponing large financial purchases. In fact, according to the Project on Student Debt, 68 percent of 2015 bachelor’s degree recipients graduated with an average student loan debt of $30,100 per borrower.
This debt load not only affects the amount of savings they have for purchases and down payments, it also greatly impacts their credit scores. Stagnant wages also impact their ability to pay down debt. According to the same PwC survey, nearly 30 percent of Millennial respondents reported that they were regularly overdrawing their checking accounts – driving them to expensive payday loans.
Not knowing the nuts and bolts of money matters can hurt Millennials’ personal financial prospects – as well as their ability to successfully negotiate loan terms for a car purchase. Knowing these details, how should a lender go about serving this large – but challenged demographic?
Millennials “Bank” Differently
A third of millennials say they won’t need a bank in the future, according to The Millennial Disruption Index. Payments are typically handled online, and many prefer transaction sites such as Venmo and PayPal. Online services are judged against all other apps – not just other financial apps, with 92 percent saying they would make a banking choice based on digital services, according to research from Morphis.
While they likely have some lender relationship thanks to their student debt, Millennials are not loyal to their financial institution. Of those millennials who make more than $75,000 a year, 56 percent are likely to change banks.
Top Tip #1 – Online Everything
Given these challenges, how can a credit union build a stronger auto loan portfolio with Millennials? Leverage your current customer portfolio and make sure they know you have an attractive auto loan offering. Put everything online. Use your website and social media assets to promote the benefits of securing an auto loan with your institution. Invest in a robust app for consumers to manage their checking, savings, and auto loans on the go. Educate Millennials using language they can understand. Provide definitions, explanations, and “hacks” that will walk them through the process. While Millennials may have limited experience purchasing a vehicle, they remain fiercely independent. Educate them, but don’t talk down to them.
Top Tip #2 – Highlight Savings
This group is very thrifty. Given their precarious financial situation, they are forced to save where they can. Present cost saving options in ways they can understand. The PwC survey found more than 70 percent of Millennials believe personal finance is an important subject to learn.
Structure loans with complimentary consumer protection products, like limited powertrain or vehicle return protection that protect their budgets. These products protect consumers from unforeseen circumstances that can negatively affect their ability to make their car, rent, or mortgage. Powertrain protection gives consumers more control over their monthly budget by taking care of some of the largest expenses related to a vehicle breakdown, the engine and transmission. Vehicle return protection offers this group a safety net to relieve their lease or loan obligation when unforeseen life events occur; like involuntary unemployment, physical or mental disability, or critical illness, etc.
Top Tip #3 – Boost Crowd Approval
The Millennial generation created our online review community and they rely heavily on recommendations when making choices. Leverage Yelp, Google Reviews, and other online social review sites to recommend your institution. Incentivize positive reviews, clearly demonstrating that you care about their opinion and want to position them as someone “in the know.”
While these tactics might seem laborious, they will pay dividends in the future. If your reviews are all positive, you spend time educating (without preaching), and you enable much of the transaction online, chances are you will build your Millennial auto loan portfolio.