“Demographics have a major impact on what will be bought, by whom and in what quantities…The inability of experts to accept demographic realities gives the entrepreneur opportunity.” -Peter Drucker
My first job in banking was that of a lowly marketing intern. In 1986, I was the dweeb that hunkered down on a DOS-based PC and coughed out demographic data and brilliant MCIF reports that no one ever read. Nearly 20 years later, I still run across marketing staffers whose data goes ignored. They receive polite smiles from senior managers, hear responses like “Wow, that’s interesting stuff” and then find everyone jumping back to the tactical issues of the day. Unfortunately, demographics will play a more significant role in the future of the banking industry. There are some mongo shifts occurring that need to be incorporated into your executive team’s strategic planning process.
So Gonzo readers, here’s my bottom line thoughts on four generations of Americans today and how these demographic trends will ultimately change our industry:
“God bless America
Land that I love…
Stand beside her and guide her”
For the roughly 60 million folks born before the end of World War II, the most critical demographic trend impacting our industry is the continued extension of life span. This will be the first generation of people on Earth who are worried about the fact they will live longer than they had planned. The greatest generation is the wealthiest group of people to ever live, but they are also damn scared about the future. Financial Freedom, a reverse mortgage lender, found that Americans ranging in age from 72 to 75 ranked fraud before health crises and terrorism as their top fear. In addition, the older generation is borrowing more. The average credit card debt has gone from roughly $2,000 for those 65 and older in 1992 to $4,000 in 2001. In addition, bankruptcy filings are up 213 percent among those 65 and over compared to only 19.6 percent for those 25 to 34.
Demographics also tell us that we will have an upsurge of widows in America. According to Arizona State University economist Steve Happel, there will be an explosion of people over 100 years old in America, but nine out of 10 will be female. For all the guys out there, if you can hang on past 100, the babe potential will be awesome!
Strategic Mandate for Bankers:
Banks need to quit talking about financial “solutions” and better organize their content, sales approaches and training around the Greatest Generation’s need for security, fraud protection, wealth transfer and affordable long-term health care. For years, banks have talked about two vaporware products for seniors: the reverse mortgage and long-term care insurance. Neither of these products sells well today, mostly because their features are inadequate and their marketing is tepid. Banks need to put their muscle around making both products stronger and improve the front-line knowledge of these offerings. In addition, banks need to recognize that older individuals are becoming a better source of loan demand while understanding that some of the greatest generation is getting overextended with debt. Finally, investment and trust departments must realize that the “widow” segment will have tremendous needs for advice. Many lived in traditional households where the husband hoarded the knowledge about finances and investing. Helping these widows feel secure and guarding them from fraud is a responsibility bankers should grab.
“Out on the road today…
I saw a Dead Head sticker
on a Cadillac”
January 1, 2011 will be quite a big day in America: it will be the day the first Baby Boomers (those born 1946 – 1964) will reach the age of 65. It will also be exactly one day after President Bush’s repeal of the estate tax expires. Could we see a rash of “inadvertently” pulled life support chords on New Year’s Eve? Let’s hope not. Certainly everyone has heard about the 76 million Baby Boomers reaching retirement age and the huge wealth transfer that is about to occur. Estimates for this wealth transfer range from $10 trillion and $126 trillion. Sounds like a party! Unfortunately, other experts argue that the amazing wealth transfer will be a dud. Parents will live longer than expected and eat up all the inheritance in health care and early bird specials at the Sizzler. As Laurence Kotlikoff of Boston University recently concluded, “I’m sorry to burst anyone’s bubble, but there’s no economic justification for any bonanza inheritance.” In addition, the bulk of this amazing wealth transfer will fall to a very few. Cerulli Associates estimates that the wealthiest 2 percent of Boomers will inherit 55 percent of the wealth. Most Boomers have not accepted the low probability of inheritance. According to the Employee Benefit Research Institute, nearly two thirds of Boomers are behind in saving for retirement, and 25 percent have no savings at all. Less than one fourth of Boomers are confident they will have enough to retire.
Strategic Mandate: Baby Boomers enjoy the good life and they’re still hoping mom and dad’s leftover money will save the day. Planning for retirement seems about as fun as flossing to them – they’d rather buy a Harley and a condo in Naples. Banks have a role to play in showing Boomers the cold hard facts and helping them establish better discipline in saving and investing. In addition, Baby Boomers should be thinking about risk management products such as life insurance and long-term care while they are healthy enough to afford it.
“Here we are now…
I feel stupid and contagious
Here we are now”
Falling behind the Baby Boomers are only 58 million Generation Xers, born between 1965 and 1982. The greatest impact of Generation X on the banking industry will be in our labor market: there’s just not enough Gen Xers to fill the jobs that the Baby Boomers will be vacating. Will our banks be able to find that commercial lender with 15 years of experience? Will there be adequate professionals to groom for senior management? Futurists also fear that the vacuum left by the Boomers and inadequately filled by Gen X will have negative consequences for the housing market, but this pending housing glut is far from certain. (See Mortgage Markets and Wealth Transfer) Boomers have shown a great love of buying and financing second homes, and new immigrants may provide additional growth in housing demand to fill the shortfall.
Strategic Mandate: Banks must recognize that they will be entering an intense “talent war” over the next 10 years (See Winning the Bank Talent War). The days of running a want ad and hiring a headhunter will be replaced with:
“You better lose yourself in the music
The moment…you own it
You better never let it go”
The “baby bust” that created Generation X did not last forever. A new birth explosion occurred from 1983 to 2000, creating an amazing 74 million Generation Y Americans, also known as “Echo Boomers.” This generation of rap lovin’ homeys is nearly as large as the famous Baby Boom generation. The oldest Gen Yers today are just beginning to graduate from college and enter the workplace. Most bankers understand Gen Y intimately because they have one or two children or grandchildren at home. These creatures are the ultimate hyperactive multi-taskers: instant messaging their friends online while the stereo blasts and the TV is on mute, all while they are studying for a biology exam. According to experts, their average attention span is only seven to eight minutes. As scary as it seems, these Gen Yers also represent the mainstream banking customer and corporate employee 10 – 15 years from now. While predictions concerning the death of the bank branch were quite premature, Gen Yers will be the demographic group that forces banking over the top with technology: wireless, online, broadband, alerts, no cash, no checks and a card that does everything. This generation is the perfect fit for every cool thing our I.T. groups have ever dreamed about.
Our country will need the labors and productivity of Gen Y to help pay the Social Security tab as the Baby Boomers go through old age. However, as employees, the Gen Y gang is also very different. They want to balance an ambitious career with the flexibility to go snowboarding every Friday. For most of us tensed-up bankers, it will be quite an adjustment as we bring them into the labor force.
Gen Yers will be real adults and active bank customers before we know it. Much of our assumptions today about delivery, marketing and employment will be old school fo’ shizzle. While the wealth and financial muscle held by these individuals is minimal today, the accelerating retirement of the Boomers will mean that Gen Y will become vital sooner than any other generation. As we talk in strategic planning about all the new branches we’ll be building next year, it would be healthy to pause and think about what the X-Box-touting youngest Americans might ultimately do to this delivery model.
Management guru Peter Drucker has often criticized business executives for not paying heed to the dramatic changes that demographic shifts bring to our industries. While these trends may seem high-level and far off, their impact is coming fast. The oldest Boomers today are already 58 and many are retiring early. The shortage of skilled management professionals is already being felt by HR departments, and the delivery expectations of Gen Y are already being felt in our call centers and Web sites today. So bankers, take a walk down to see your friendly marketing intern. He or she might have some ideas about your future business that are worth listening to.