How to Engage Younger Generations With Better Financial Management Tools

Attracting the next generation of customers is a key consideration for many banks as they anticipate the great wealth transfer, where the research firm Cerulli Associates projects older generations will transfer to their heirs $124 trillion by the year 2048. At the same time, national providers, including third-party fintechs and digital-first banking competitors, have captured young consumers’ attention as well as deposits, with an estimated over 18 million users for youth accounts, over 80 million users for young adult accounts and an estimated $360 billion in purchasing power for Gen Z consumers. According to research from Rivel Banking Research, today’s parents are proactively opening accounts for their children, with 63% opening accounts to set them up for financial success early in life.

Increasing consumer demand for youth accounts provides a unique opportunity for banks to capture more deposits while attracting a new demographic. Banks that offer an account designed specifically for these individuals can more effectively engage the entire family, build long-term customers and equip the next generation of account holders with a strong financial foundation by teaching positive money management habits.

Attracting Gen Z and Gen Alpha Consumers
Generation Z consumers under 18 — born after 2007 — and Generation Alpha, born in or after 2013, are key prospects for youth banking accounts. This is not a new initiative. Traditionally, these accounts are often just sub-accounts attached to a parent or guardian’s account, mirroring the adult’s digital banking experience.

This model provides few benefits to the child, their parents or the bank. Many third-party fintechs partner with banks to offer youth banking products, but these are controlled by the fintech, meaning all deposits and interchange fees are held at a sponsor bank. Sponsor banks are a regulated financial institution that partners with fintechs and others to offer banking services, enabling the nonbank to offer financial products and services without needing a banking license. If a child has an account through this model, once they turn 18, they aren’t eligible for their previous youth account and must find a new institution. As the child reaches adulthood, they have unfortunately had little to no meaningful interaction with the institution that provided the youth banking service and therefore they have no brand loyalty.

Legacy Tools Versus Future of Youth Banking
In contrast to the traditional youth accounts, a true youth account should be designed specifically for children and teens at each stage of life. These banking products should not only make it simple for parents to send funds easily and securely but also provide a digital-first experience with features that teach children how to responsibly manage their money and encourage saving through completing chores or earning good grades. Offering controls for parents and guardians to monitor account activity, such as debit cards with spending limits, provides an added layer of oversight for the parents.

According to a Standard & Poor’s survey, only 57% of Americans are considered financially literate. This lack of education leads to poor decision-making and considerable long-term stress for users. Banks can offer tools to promote financial literacy for younger clients. For instance, enabling parents to offer loans to their children for a bigger purchase can teach the child how loans work, even providing payment plans with interest. Offering financial education and real-world experiences promotes long-term sustainability for institutions, while also empowering children to get a head start on their financial lives.

Creating Long Lasting Relationships
With limited resources, most banks must partner with a technology provider, but the institution should remain in control of the customer relationships, retain all deposits and receive any interchange fees.

A youth banking solution provides a seamless experience designed specifically for a younger demographic, even including gamified activities to encourage, educate and foster financial wellness. While these accounts may be limited in generating revenue compared to accounts for adults, engaging consumers during childhood fosters relationships that extend into adulthood. When a teen turns 18, their current banking account should automatically convert to an adult account, maintaining all account history and reinforcing stickiness and loyalty. As children move into new phases of life and need banking services, their current bank will be top of mind for loans, mortgages and retirement planning. Banks that ignore this opportunity or fail to resonate with the next generation risk losing multigenerational relationships, shrinking deposit bases and missing revenue opportunities.

Banks should focus on providing unique and meaningful services to each customer, at every stage of their life. Integrating youth banking is a critical first step in lifecycle engagement to build brand awareness and maintain relevance with every generation.