Strong growth in digital banking during the pandemic didn’t come with seminars in financial literacy. It should have, as younger demographics are found to be less fluent in personal finance than older cohorts, and a little education goes a long way in improving this situation.
Social media tends to be the go-to information source for Gen Z and millennials, and as NCR Digital Banking President Doug Brown told PYMNTS’ Karen Webster, that’s not a good thing.
It’s the job — even the ethical responsibility — of financial institutions (FIs) to get out in front of the social influencer hype with informed advice from professionals who can impart truly valuable financial knowledge to less experienced people first entering the financial mainstream.
“The FIs need to reach out and meet these customers where they are, where they want to be met,” he said. “That does involve an education curriculum model that they can extend out, usually through digital format. We have a lot of clients who do it in that manner.”
Illustrating the trend with a personal anecdote, Brown told of helping his daughter get her first auto loan. “That was fun. Not really,” he joked, “but it was fun getting it done. The interesting thing was that we got to the financing part, and I did not want her relying on a car dealer to give her advice about the appropriate auto loan and auto loan structures.”
Yet such are the sources financially uninformed consumers turn to, and most people don’t have a banker by their side at the dealership.
“We had a learning moment on the spot,” he said. “She’s like, what should I do? I said I think you should go to your credit union and ask them about the appropriate loan. That’s what we did, and that’s where the real experts are that you want them to derive … the information from, the education, [from] the trusted adviser.”
That personal engagement model is somewhat lost on Gen Z and millennials who may not have been big on branch banking before the pandemic and may believe they don’t operate anymore.
Brown acknowledged this, saying, “I happened to be there with [my child] in the moment, but the point is how do you reach out and inform this new consumer base on what they need to know and where they should come for it? That’s where the credit unions and community banks really need to reach out and connect with them.”
See it now: The June/July Digital-First Banking Tracker
Not Just a Millennial Thing
Looking at where to begin with financial literacy efforts, Brown told Webster that FIs “really need to engage in multiple methods to inform all these consumers. By the way, it’s not just a millennial thing. I think it’s a general consumer problem, as [PYMNTS] research has shown.”
He spoke of outreach mechanisms that appeal, be they classroom formats, webinars, and ways of “engaging people on new topics and segmenting the topics too. Is it home loan, auto loan, business books and automated bookkeeping?”
At present, “There’s too many unqualified TikTok opinions out there driving this, and the millennials think that they know it — until they don’t. That’s true for all consumers. It’s aggressive outreach and creative methods [that are needed].”
The need is acute. Returning to the example of his daughter negotiating her first auto loan, Brown said, “She was intimidated by the topic,” so he prepped her with a few salient questions like “Is it a simple interest loan? Is there a pre-payment penalty if we pay this off early? When do the payments start? I gave her enough guideposts that she could form her own opinion, ask the questions. Then she felt like she owned the interaction and the answer path.”
Calling that “a powerful way to learn and remember, rather than me just doing it for her,” he told Webster this scenario is spilling into all areas of personal finance at a time when the old signposts have lost much of their meaning in a digitally transformed connected economy.
“The milestone model that’s traditionally been where people are looking for key life indicators and the propensity models, I think right now, like with my daughter’s example, there’s a big range and variety of when people are achieving these milestones. It’s not quite as time-based maybe as it used to be.”
That means FIs need to delve into data for the new tells and signals because in 2022 “it’s harder to diagnose when someone is ready to buy the car. Home purchasing, too, is so volatile, but you want to be prepared and have them know to come to you.”
This touches on multiple aspects of how credit utilization impacts credit scores and more, but he said, “the consumer world [has a] very low awareness about how those things mechanically work, what you do about them and what matters. It’s being there and aware, promoting it early, even before they need it, and it’s going to vary a lot now. People are not jumping into first home purchase with predictable patterns as much as what we had seen historically.”
See also: Zogo: How A 21-Year-Old Duke University Grad Is Reinventing Financial Literacy
Neobank Knowledge
Giving props to neobanks for pulling ahead on financial literacy efforts, Brown thinks there are a few strong examples of digital-first entities helping users understand their money better.
“That’s one thing I applaud the neobanks for doing, the outreach and awareness and driving it to a higher-level need for these consumers, especially young kids,” he said. “A great example of one is SoFi. They wrap the whole thing. It’s not just a question of refinancing a loan and rate. It’s more about what does this mean to your overall financial health, wellness and stability?”
He added that some NCR clients are now offering curriculums in partnership with companies like Zogo. “Consumers really groove on it, they’re learning something, they enjoy doing it, the push and outreach is great, and I think that’s something the more traditional banks and credit unions need to borrow from.”
Back to the issue of getting through to Gen Z and millennial consumers leaning on “TikTok stars that gain fame as the ultimate crypto adviser or whatever,” he said banks and credit unions need to do more deliberate outreach, as neobanks are, pivoting to “a university or high school community engagement model. They’re already connected in the community.”
At that point it becomes about showing how peers are successfully navigating the increasingly complex world of digital personal finance and providing the banking tools to back these efforts.
“Nothing appeals to that segment more than one of their own. So it’s helping to create champions if you will. That’s what social media really is about. How do you prop up and show someone who’s benefited from this, and the hard work paid off, and here’s what resulted?”
Saying that the credit score advocates have effective models for this, he added, “It’s the same kind of thing where if the bank could let some of their customer examples speak for themselves [it’s] louder than the bank speaking for themselves” to trigger a mindset change.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More