How Will You Bank in the Future? Watch Gen Y

As the Baby Boomers head off into retirement, banks will begin prizing their Gen Y customers even more because as a group they will outearn both Gen X and the Boomers within the next 10 years.


This means this group—currently aged 12 to 32 years old—will shape the products banks are offering their customers, said Mark Schwanhausser, an analyst at Javelin Strategy and Research.

Schwanhausser was part of a team at Javelin looking at the banking habits of Gen Y members 18 and older. They found Gen Y, which is expected to make up 36 percent of the US adult population by 2020, has very little loyalty to their banks, and demand to use electronic devices to manage their money and pay their bills.

So far, this means the group has favored larger financial institutions like Citigroup , JPMorganBank of America , and Wells Fargo. About 43 percent of the age group has an account with these banks, while 25 percent uses larger regional banks.

The reason? Gen Y wants online and mobile bill payment and account management as well as access to a large network of ATM machines.

Javelin's research suggests banks will save a lot of money shifting these customers to less expensive electronic channels to manage their money.

Fortunately this is already occurring. More than one in four Gen Y consumers used mobile banking in the past month, compared with 18 percent of all consumers. They also use this service more frequently than the average customer.

However there is a downside. This group doesn't have a stellar reputation for how they manage their finances.

For example, a large number of Gen Y consumers have never balanced a checkbook. Instead they monitor their accounts online to manage their finances, and 25 percent say they do not manage their finances at all.

Schwanhausser said there is a big opportunity for banks to teach these customers how to watch their money to make sure they the pay their bills on time and establish good habits such as saving for emergencies and retirement.

"They are eager to have more personal finance applications," he said. "That could be tools that tell me where my money is going, how am I spending it, or tell me when I'm about to blow it."

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