09 Jun Coming of age in the Great Recession: A millennial financial perspective
I am a millennial — a term with which only 40% of my peers willingly identify. And who can blame them? We’ve been defined by others time and time again and, often, not in the most flattering of lights. But these attempts to assign personality types to an entire generation seem overly simplistic to me. Instead, I accept the term for the association that feels more authentic to a generation: our shared formative experiences. There are two in particular that stick out to me as the most defining experiences of our coming of age: rapid technological innovation and The Great Recession. It is the lasting mark of these two combined that I believe gives us the greatest window into the economic influence we’ve had and, more importantly, will have in the coming years.
We’re Skeptical of Traditional Financial Institutions
We came of age during the greatest economic decline in recent history. Many of our peers entered the workforce unemployed, others quickly became unemployed. Naturally, the experience has left many in my generation deeply skeptical of the incumbent financial system. The data reflects it:
General distrust in the financial system is still a top concerns when it comes to money. The top 4 retail banks are also among the least loved brands by my generation. So, it’s not surprising that a recent Facebook study found that 68% of us did not feel understood by our bank and half us were willing to swap our bank.
Crippling student loans coupled with a recession driven by mismanaged debt has also made my cohort averse to further debt. An astonishing 63% of 18-29 year olds do not have a credit card. In turn, they’re also very concerned about credit scores.
Coming of age during the greatest economic decline and the worst job market the United States has seen since World War II clearly left its mark. But in spite of our skepticism, we haven’t lost our optimism for the future.
We Trust Technology and the Transparency it Affords
The exposure we’ve had to rapid technological innovation is the more commonly recited millennial narrative but it bears repeating in this context. We grew up in a period of extremely rapid technological innovation. From the commercialization of the internet to smart phones, we are “digital natives” and have come to believe in the possibility technology affords. Now, we’re mobile and product oriented. We have come to expect, and, yes, rely on technology at our fingertips in every aspect of our their lives. And our enduring optimism is partially driven by our faith in technology’s ability to solve real problems.
We’re Today’s Workforce and the Market is Responding
So why does everyone care so much about millennials? (It certainly does seem like every other report is trying to pin down our preferences.) The answer is very simple: as of this year, we are the largest living generation. Today, there are more of us in the workforce than any other generation and we’ll make up 50% of it by 2020.
Our earning (and spending) potential is huge. We’re demanding solutions where we know what we’re paying; that have seamless product experiences; that are mobile first; and frankly, that don’t require countless hours on the phone or in sitting in a bank, twiddling thumbs while trying to accomplish a simple task.
This is why we’ve seen so many fintech startups emerge to offer the connectivity and mobility as well as the sense of control and transparency we so desire. A number of these companies have made big headway: from early movers Venmo for social payments and Betterment for investment automation to RobinHood for seamless stock trading and Acorns for easy savings, the list goes on.
We’re Influencing Business and Entering our Peak Earning Years: What’s Next?
These point solutions are a good start – and this market has gotten quite crowded. But there are still many opportunities: our finances will get more complex, our buying power within organizations will grow, and the underlying systems won’t work the way we do. So what’s next?
1. With increasingly complex personal finances, today’s fragmented solutions will need to come back together.
Never underestimate the power of simplicity. Sure millennials are “multi-tasking digital natives,” but we still crave a unified experience. As our finances become increasingly complex, fragmented point solutions won’t cut it on their own. We need a more comprehensive view of our finances and the ability to manage them across products, from one singular platform.
Banks might still be the best place to do this. They are, after all, where the bulk of our income comes in. Some banking incumbents are making attempts to build technology to better reflect our needs, but they have a long way to go on their tech – and even longer to rebuild transparency and our trust. That’s why I believe there’s room for new players to emerge. Chime*, in which I’m an investor, is one such company. As a mobile first bank with an emphasis on delightful user experience, very few fees and transparency, Chime embodies what I believe my generation is looking for. It includes its own features around savings and rewards, but it’s also one platform through which users can manage their money across whatever other products they choose.
2. We’ll choose the business solutions that reflect our technological and financial perspective.
Within organizations, we’ll choose financial software that lives – securely – in the cloud, offers great data and reporting for organizations while also providing a highly quality user experience for our employees. We’re seeing early adoption of these kinds of solutions already in small businesses where many millennials are the decisions makers. For example, Gusto has become a beloved payroll and benefits provider by small businesses and their employees alike – something that would have seemed unfathomable five years ago.
With so many millennials choosing freelance work earlier in their careers, they’re already adopting solutions that enable them to reliably manage their income, insurance and taxes without hassle so that they can focus on their core work. Companies like Fluid* which provides invoice based income financing to contractors and MileIQ which enables freelancers to capture business-related expenses, are great examples of early movers in this space.
This is just the beginning. As millennials start to really drive business decisions, we’ll see a lot more new B2B financial products across freelancers, SMBs, and, increasingly, enterprise.
3. With time, we’ll make the systems and infrastructure that underlie our financial system more data driven, transparent, and empowered by technology.
Our financial system is riddled with outdated infrastructure. A few examples:
FICO. FICO credit scores offer an extremely limited view into a person’s creditworthiness. And with millennials’ aversion to debt and credit cards, many are not building credit scores. However, there is a tremendous amount of alternative data about us that can be used to evaluate our creditworthiness. Companies like SelfScore* are already using alternative data to offer credit to foreign born college and grad students who, like many of their domestic peers, have no FICO score and aren’t otherwise being served by the credit system.
Payment infrastructure. While consumer payments have improved, there’s a long way to go on B2B. The fact that it still takes several days to do a transfer through the Automated Clearing House (ACH) is a result of a broken and biased system, not a lack of technology. Plaid is already helping to – among other things – speed up authentication for ACH transfers by providing secure and verified visibility into a payment sender’s account. Improving the existing system is a good start but true real time payments are the future.
Identity verification and fraud. In an increasingly digital world, we’re still far too reliant on outdated methods for ID verification and fraud detection. Consumer “verification” often constitutes asking a user to identify which street you’ve lived on or which of the following people is a family member. Most of this information can be found by a fraudster almost instantaneously through a simple Google or Facebook search. Yet we have the technology to do so much better. For example, Simility uses analytics and machine learning to verify consumers and detect fraud based on their digital behavior — much harder to replicate than a street name.
In my world as an early stage investor, “fintech” is one of hottest industries today and “millennials” are certainly the hottest demographic. On the surface, they seem too hyped, too saturated. But with a deeper look, it’s clear that the financial system itself has left a lasting mark on my generation. This coupled with our faith in technology’s ability to solve our biggest problems means there’s still lots of opportunity ahead. As we evolve, so too will the opportunities for new products, services, and infrastructure.