What the Financial Industry Should Know About Gen Z and Millennial Banking Habits

Gen Z and Millennial Banking Habits Pose Unique Challenges to the Financial Industry

In 2020, Generation Z (Gen Z) and the millennial generation (millennials) made up nearly 50% of the workforce. That figure is estimated to reach 75% by 2030. According to the Federal Reserve Bank of St. Louis, the latest Survey of Consumer Finances reports millennial wealth is on the rise. In terms of median wealth, millennials are not only catching up to other generations but are expected to exceed them.

Millennials and their younger counterparts in Gen Z comprise key demographics for the financial industry. However, when it comes to banking habits and managing money, both generations march to a different beat. To reach members of these generations, the financial industry must understand the unique banking trends of these tech-savvy customers with a complex financial past, present, and future.

Millennials and Gen Z Numbers at a Glance

Millennials were born between 1981 and 1997 and came of age during the 2008 financial crisis. Gen Z members were born between 1996 and 2010, with the oldest starting their careers during a pandemic.

On July 1, 2019, millennials officially surpassed baby boomers as the largest living generation, with over 72 million members. Gen Z, at 69.6 million, is not far behind and will surpass millennials by 2034.

Over the next 30 years, an estimated $68 trillion is expected to pass from the baby boomers to millennials. Naturally, this impending transfer makes millennials and their younger counterparts in Gen Z key demographics for the financial industry.

A Banking Relationship? It’s Complicated.

When it comes to managing money, millennials and Gen Z have different approaches. While millennials prefer online banking to brick-and-mortar banking, many use a traditional bank to finance large purchases, such as a home. Gen Z, on the other hand, looks to social media for financial advice and smartphones for banking activity—think Venmo. These habits and banking trends make effectively reaching both generations challenging for the financial industry.

In order to reach members of these generations the financial industry must understand their unique banking trends, which have been shaped by a complex financial past, present, and future.

Traditional Banks, Smartphones, and Peer-to-Peer

Millennial’s relationship with the financial industry has been shaped by a unique confluence of factors, including the 2008 financial crisis and the associated housing bubble, as well as high levels of student debt.

These negative associations have, in turn, left millennials with little trust in financial institutions and lenders. A 2023 Associated Press National Opinion Research Center poll found that only 10% of all US adults say they have high confidence in banks and financial institutions. Instead of going to traditional banks, many millennials seek financial guidance from family, friends, and online services. According to a recent study by Deloitte, many millennials don’t feel their needs are understood by their bank.

Gen Z is also demonstrating a preference for online services over traditional banks. Although nearly half of Gen Z  is too young to own credit cards or bank accounts, they are still using their smartphones for banking activity.

In a 2019 study on the future of banking, Betsy Grascek, Morgan Stanley U.S. Large Cap Bank Analyst, underscored why it is vital for the financial industry to pay attention to Gen Z’s perceptions, banking trends, and preferences now, noting, “When these kids turn 18, the banks will have to fight to explain why these consumers should use them as their primary financial institution, not just as a back end.”  A warning that, five years later, has proven to be starkly on point.

What Money Matters Do Millennials and Gen Z Care About?

Both millennials and Gen Z were born into and came of age during seemingly unstable worlds. As they’ve navigated their way through university, they’ve accumulated high levels of student debt.

For millennials, this financial burden and memories of the 2008 financial crisis have produced a generation that is wary and fiscally conservative. As ‘digital natives,’ Gen Z has come of age with access and exposure to what seems like a limitless amount of financial information.

This has, in turn, made them even more acutely aware of their finances and financial behavior at an even earlier age. Older members of Gen Z began their careers just as the pandemic shut down their world.

Amidst the uncertainty, debt, and information overload, both generations are ultimately looking for resources and tools to manage their finances smartly in three key areas:

• Debt reduction
• Retirement savings
• Investment strategies

Gen Z and Millennial Banking Needs

While these generations are unique in some ways from their predecessors, they are already participants in the national economy. They need key financial services that are transparent, accessible, convenient, and personal. This means there are opportunities for the financial industry. That is, if it is willing to meet millennials and Gen Z where they are and compete with the social media and online banking platforms that already have their attention.

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This is an updated version of an article originally published on May 6, 2019, and recently republished on June 20, 2021.]

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