Purchasing Power

The Baby Boomers were the largest generation in U.S. history, and they currently make up the majority of credit union membership.  Armed with enormous purchasing power, Boomers have shaped our society and markets.  These days, though, Boomers are hitting the point in the income/expenditure bell curve where their earnings and their consumption will start to drop.  And while their generation has inherited significant transfer of wealth, there are a lot of Boomers – so a family inheritance is spread across multiple siblings.  In addition, Boomers are living longer, paying higher healthcare costs, spending on lifestyle choices rather than saving, and transferring wealth to their offspring in the form of college tuition and other financial assistance. Boomers are redefining what it means to grow older, and they need to know that their financial institution can partner with them as they navigate retirement planning.  Are your Boomer members aware of all the different services your credit union offers, and do they know that they can remain a member after retiring from a SEG?

Generation Y has now surpassed the Boomers in size.  Born between 1985 and 2005, members of Gen Y have been characterized as tech savvy and well informed; they also tend to be civic minded and seek a work-life balance.  Like most of us, they don’t want to feel like they are being sold to – and this generation is particularly adept at figuring out your intentions when you communicate with them.  Although the older members of Gen Y are entering the workforce, the average age for Gen Y is 15 years old.  Now is the time for credit unions to build relationships with Gen Y by providing education, offering value-based entry level products, and appealing to their sense of social and environmental responsibility.

Don’t overlook the overlap between these two powerhouse generations.  Boomers are parenting and paying for Generation Y; Generation Y has an impact on current Boomer financial choices and stands to inherit whatever the Boomers have left.  Are you leveraging your relationship with your Boomer members to bring you closer to Generation Y? Does your credit union know how to speak effectively to the needs of these two diverse and important groups?

Passing The Buck

"Transfer of wealth” is a pretty impressive sounding term that makes me think of sumptuous homes with marble everywhere.  In reality,  though, transfer of wealth is a term that simply refers to the shift of assets from one generation to another.  In aggregate, it’s a large number; in actual experience, it’s what happens when your Great-Uncle Ralph passes away and you inherit his great dane and a $50 savings bond, while the rest of his estate is divided among other family members, taxes, estate settlement, etc.

Economic growth in the US following World War II resulted in widespread wealth in our country – specifically, expansion of the middle class and reduction of poverty rates.  While the majority of wealth remains concentrated among a select few, this means that across the board the older generations in our country have some assets to pass on.  According to some estimates, through the year 2052 up to $41 trillion in assets will be passed forward.*  Although only a fraction of that $41 trillion will take the form of inheritance, it still means that the younger generations stand to gain significant financial power.  As the Silent Generation (currently ages 65 to 85) and the Baby Boomers (current ages 45 to 65) age and pass away, they will transfer assets to members of Generation X and Generation Y.  Keep in mind: both the Silent Generation and Generation X are small, so most of the assets will transfer from the Baby Boomers to Generation Y.

Even though members of Generation Y currently range in age from about 5 to 25 years of age, they are starting to make themselves felt as a powerful force in the market.  Not only do they influence what their (mostly Boomer) parents purchase, they are also beginning to make purchasing decisions at an earlier age than previous generations.  And where there’s purchasing power, there’s a need for financial literacy and financial services.

Journal of Gift Planning, 1/2003, John J. Havens and Paul G. Schervish: “Why the $41 Trillion Wealth Transfer is Still Valid.”

The Earnings Bell Curve

Previously, we talked a little about the demographic wave – and how our country currently has small generations (like the Silent Generation and Generation X) that alternate with much larger generations (such as the Baby Boomers and Generation Y).  Knowing where your members fall in the wave and understanding the pool of prospective members within each section of the wave can help you shape your marketing strategy and your expectations for membership numbers across each group.

Another important thing to consider is the income curve.  Average income and average expenditures tend to follow a bell curve, with both peaking at around 50 years of age. Credit union members tend to be most profitable when they are in the top portion of the bell curve – using a variety of products and services, particularly loan products.  The average age of a credit union member is 47 years old, according to CUNA.  That means most credit union members are likely Baby Boomers, who are somewhere near the top of the bell curve. The catch, then, is making sure you keep a steady stream of members climbing the bell curve to make up for other members as they age out of their prime profitability. 

Now think about this bell curve in terms of generations.  According to a December 1, 2010 article in Credit Union Times, over 40% of credit union members are Baby Boomers between the ages of 46 and 64 years old.*  The group currently climbing the income/expenditure curve is Generation X, which we know has about 9 million fewer people than the Baby Boomer Generation.  This means that in order to make up for the smaller size of Generation X and maintain your current level of profitability, you need to extend your efforts to cross-sell products to the Boomers and start heavily recruiting the next big generation: Generation Y.

CU Times, 12/1/2010, Marvin Umholtz: “Nonconformist Boomers Are Unconventional Members.”

The Generation Wave: Age Appropriate

When you look at your credit union’s membership in terms of age and other demographic characteristics, do you also take the time to think about the overall demographics of the market you serve? What about the demography of the US as a whole?  Or in more common sense terms: when you look at the number of members you have in a certain age range, are you basing your expectations on a comparison to how many people total there are in that generational age range? 

 If you are like most businesses (not just credit unions – businesses in general), the answer is probably “no.”  After all, your yardstick for comparison is probably your own past performance.  And that’s a good yardstick for a lot of things, but in this case it doesn’t give you the full generational picture.  That’s because not all generations are equal in size.  This sounds like common sense, but believe me – most of us don’t take the generation wave into consideration that often.  We really should, because knowing how large the pool of prospects is within each generation can really help shape products, delivery channels, and marketing efforts for your credit union.

If you look at the number of people within each generation, it looks more like a wavy line than a flat line. There are some generations that are small and others that are large, and the generational pattern tends to alternate between small and large.  Makes sense, right?  If you think of a “generation” as a twenty year timeframe, a parent generation and its offspring generation will have a gap between them.  For instance, the Greatest Generation (also known as the GI Generation) was born between approximately 1901 and 1925.  Their post-WWII enthusiasm for one another spawned the Baby Boomer Generation, whose members were born between approximately 1945 and 1965.  The Boomer Generation is a very large generation, and in turn they have produced an enormous number of offspring known as Generation Y (children born between 1985-2005).  In between, you have two smaller generations: the Silent Generation, born between the GI’s and the Boomers (1925-1945), and their children the Generation X’ers, who were mostly born between 1965 and 1985.  Granted, dividing these generational groups up and identifying parentage is not an exact science – but it still serves as a good proxy if you look at the big picture.

So, now we have this wavy population line.  This gives you some perspective for how many prospects are available to your credit union in each group.  The Boomer Generation is currently the largest and most profitable generation (we’ll talk more about that later!). Generation X has about 9 million fewer members than the Boomer Generation, so they will never be as large or profitable as the Boomer Generation simply because there are not as many Generation X’ers out there.  On a per capita level they are a profitable and viable generational group – they just happen to be a small generational group.  Generation Y is the next big group, poised to surpass the Boomer Generation in number and buying power as they mature.
Stay tuned as we talk more about these different demographic groups and how understanding them can help your credit union!