Why banks sweat on Gen Y

But the news isn’t all bad – most banks are bending over backwards with new products and service packages to lure the lucrative emerging market currently aged between 15 and 31.

A recent survey by St George Bank showed that 72% of parents with adult children had provided past financial support to their children, but this was likely to drop off as the impact of the global financial crisis eats into the nest eggs of Baby Boomers.

And with 65% of Generation Y respondents admitting they had no idea of their parent’s financial situation, it appears that the time for learning good old fashioned saving and budgeting skills is now.

St George retail bank distribution general manager Andrew Moore said that the big challenge for members of Generation Y was changing attitudes towards credit and saving.

“Because of the global financial crisis [there is] a ‘tightening the belt’ mentality where people are starting to think more about what they are spending their money on,” he explained. “If you think about it for the last 10 or 15 years that thought process just hasn’t been present and in the case of Gen Y that means for all of their late childhood and adult life they haven’t had to think that way.”

Centre for Skills Development chief executive Peter Sheahan agreed there was a mental adjustment to be made.

“This mindset shift didn’t come from nowhere, it comes from a lifestyle that has been fuelled by either their parent’s wealth or their parent’s access to credit,” he said.

“What’s the biggest shift in banking in the last 40 years? It’s access to credit. Once upon a time banks only lent to customers who didn’t need the money and then they only lent to people who had a long saving record and they were very particular about the risks they would and would not take.”

The result: a generation that expects a lot for free (no fees on transaction accounts for example) and looks to easily accessible debt to fund major purchases such as homes. So what are banks doing about it?

ANZ senior marketing manager online banking Samantha Robinson said the bank had released several new services targeted at these users, such as SmartyPig – an online saving program which links into social networking sites such as Facebook to allow customers to set savings goals and share them with their friends – and online budgeting program Money Manager.

“We live in a more social online-centric community,” she explained.

“Previously you would have spoken to your friends and family and told them about saving up for your first house, but today there are less people willing to discuss finances. [SmartyPig] is a way to get support from your friends.

“We have heard about how people will choose a bank based on how they operate online and a lot of people have said that they want a bank that works for the way they live, not forcing them to live the way the bank wants them to bank.”

St George’s Moore agreed that the bank was looking at offering new products such as low-fee or fee-free transaction accounts in exchange for regular deposits (such as salary payments) and family pledge style home loan products.

“ A family pledge type product in many ways is targeted at those people who within their broader family have the ability to support the home loan but without the pledge you wouldn’t get the lender to lend,” he said.

Sheahan said offering new products was only half of the equation, with branding set to become just as important as services.

“[Generation Y] are going to want to associate with those brands that value what they stand for,” he said, citing the ‘green’ New Resource Bank in San Francisco as an example.

But there is still a risk for banks considering re-branding to not alienate their existing ‘older’ customers – who are still the most profitable market segment today – while chasing the younger market.

Hence the dilemma for banks.

“That’s the issue with young people as customers – they are so demanding and they are not worth anything [yet],” Sheahan said