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BANKING
ON YOUTH
Economic crisis during childhood has left a lasting mark
By Adrianne Pasquarelli
Illustration by Tanya Cooper
Published on January 22, 2018
Economic crisis during childhood has left a lasting mark
By Adrianne Pasquarelli. Illustration by Tanya Cooper. Published on January 22, 2018

Eric Stanley isn't just a college senior; he's also an amateur investor. The 21-year-old listens in on company earnings calls, monitors the S&P 500 Index, and diversifies ETFs like previous generations traded baseball cards. After opening a Fidelity investment account four years ago, Stanley, who is studying finance and business analytics at Indiana University, has made it his mission to personally stay on top of his dollars.

"I was always a little bit interested in numbers, and finance attracted my attention early on," he says, noting that he's made money off of early investments in Amazon and PayPal.

While Stanley might seem annoyingly precocious, he's the new norm. Born in the mid-'90s, he and a surprising number of his peers are a mature and pragmatic lot, keen to take charge of their futures. And when it comes to money, they are nothing like their millennial forbearers. With spending power nearly reaching $143 billion, according to a report released this month by ad agency Barkley and FutureCast, Gen Z, those it defines as born between 1996 and 2010, is viewed as the pivotal generation destined to make or break a brand. They're financially literate and technologically savvy, and they're saving for college and retirement, even though few of the group have yet to reach the ripe old age of 23.

"Their interest in financial topics is high, and their interest in working hard is high," says Jeff Fromm, author of forthcoming book "Marketing to Gen Z" and a partner at Barkley, noting that the group is more similar to baby boomers in their practicality. "They're old souls in young bodies."

Recession-weary

After taking a front-row seat to the toll the 2008 recession and its aftermath took on parents, grandparents and older siblings, Gen Zers are wise to the perils of spending big and saving little. Unlike millennials, who were graduating college during the recession, Gen Z was affected at an earlier age and the ensuing years have better prepared them for their financial futures, experts say.

"Gen Z could see from afar the effects of the recession and understood they could be saddled with debt—that economic surety wasn't certain after college," says Madeleine Kronovet, a senior strategist of RedPeak in charge of the company's youth practice.

Less idealistic and less drawn in by immediate gratification than millennials, this cohort isn't shying away from the hard work of researching money matters, and is keen to use every tool—often digital—at its disposal—especially at a time when college tuition is at an all-time high. Postcollege debt levels are between $35,000 and $45,000, on average, according to Thrivent Education Finance Group, which is owned by Thrivent Financial.

Culture factor

This is leading financial marketers to offer more educational materials and content to attract such consumers early on, in the hopes they will continue the brand relationship through traditional spending milestones. In addition, Gen Z is also more receptive to the culture at a brand—if a friend works at, and likes, a financial institution, for example, a Gen Zer is more apt to bank there because he or she feels connected to the company. The group pays particular attention to product reviews and Glassdoor employee reviews, even as a customer, Fromm says, because transparency is key.

"Ratings and reviews are going to matter, what your friends say is going to matter—all of that is going to matter," he says.

Some established marketers are taking the time to rebrand their offerings with this younger generation in mind. Late last year, Goldman Sachs rebranded its online savings brand to Marcus by Goldman Sachs, sending out gifts like screen cleaners in the mail to consumers, in order to make it a more friendly, approachable brand that they might not associate with greed or stuffiness.

"They're clearly trying to reach this younger generation that wants to feel like brands are their friends," says Michelle Caganap, group account director at RedPeak.

And younger consumers will have dollars to invest. They are counting their pennies early on to prepare for the future, saving more than their older colleagues, experts say. Nearly 60 percent of Gen Z consumers save half of every dollar they make—this compares with about 50 percent of millennials and less than 30 percent of Gen X and boomers, according to Ally Financial, a digital financial services company headquartered in Detroit and Charlotte, North Carolina.

"I've always known that I needed to buy my own car—that I had to put money away for that and other expenses I had coming in life."
Allie Kerwin, high school senior

After living through her own family's financial challenges in recent years, Allie Kerwin, a 17-year-old high school senior living in Neptune, New Jersey, doubled down on saving money from the babysitting and restaurant jobs she's worked for the past five years. Last summer, she saved 90 percent of her earnings to afford a 2005 Chevy Cobalt, her first car. Kerwin, who takes a financial lit class in high school, also selected her college, choosing to play soccer at Ramapo College of New Jersey, because the tuition was more affordable than pricier competitors.

"I've always known that I needed to buy my own car—that I had to put money away for that and other expenses I had coming in life," she says.

The recession-weary group is also debt-adverse, which can be a challenge for credit card companies. The rate of people ages 18 to 22 today who are opening credit cards is lower for Gen Z than it was for millennials, according to Scott Fogel, director of strategy at New York-based agency Firstborn. Some new venture-capital-funded credit card brands are trying to market directly to younger consumers by touting lower interest rates and an easy-to-navigate digital experience that bypasses hidden fees and excessive interest. Petal, a new credit card company for first-time credit borrowers that doesn't use credit scores, unveiled its first card last September. The company just received $13 million in VC funding earlier this month.

"Today's consumers are looking for honesty, simplicity and transparency," says Jason Gross, Petal's chief executive and co-founder. "We don't believe that the traditional options in the market today meet these expectations, and the data shows that consumers are looking for an alternative."

Value is a must

Today's youths are looking for ease and value in their financial dealings, but they are doing the heavy lifting of research themselves. Many, like Stanley, prefer to research investing using online guides and information materials. This can pave the way for new financial brands, like Petal, to market their wares from a place of Gen Z-focused authority.

"If you're looking at this category as a young person from a more objective, questioning point of view, it is incumbent on the financial company to prove what you're offering is of value and its delivery doesn't pose an excessive burden," says Fogel.

To that end, many marketers are distributing content to meet the group's needs head on. Online brand SoFi, which provides student loans, offers advice on postcollege job interviewing. Other brands, like Capital One and Charles Schwab, tout their employees as money coaches rather than simply financial advisers.

Ally Financial works with youth-focused media partners, such as Vice Media and Cheddar, and influencers to create financial literacy content. The bank tries to use humor, promotions and education to connect with Gen Z customers, says Andrea Brimmer, chief marketing and public relations officer. To stay in the know, Ally conducts its own consumer research panels each month and works with the Center for Generational Kinetics in Austin, Texas.

"A lot of topics are very relevant to the younger consumer," says Brimmer. "The whole education-through-influencers and specific content has been a really important area for us."

At a time when college graduates are saddled with anything from $400 to $8,000 a month in student loan debt, according to Thrivent, brands know consumers can't afford to keep their heads in the sand. Thrivent has built out a one-stop shop, offering curriculum around the perils of college tuition, through its nine-month-old Thrivent Student Resources program. The brand visits schools and uses interactive mobile ads and webinars to explain the cost realities of school. In one ad, consumers can erase the ever-increasing loan debt with a swipe of a finger. Jill Cole, chief marketing officer of Thrivent Education Finance Group, says that when millennials went to college, there was more of a "we'll figure it out later" approach to parents worrying about financials."But that's not the case anymore—parents and families are waking up and realizing they can't worry about it later. They need to plan now," she says.

Digital dollars

There's also a bevy of opportunity for digital brands, though most robo-investing services like Wealthfront have minimum investing thresholds. These brands are tapping into a generation that has more confidence in answers from technology than in answers from their own parents. It's the "just Google it" generation, says RedPeak's Kronovet, who notes that growing up, many youths today were told by parents to Google their questions while caregivers took a backseat.

Acorns, an Irvine, California-based company founded in 2014, promises an effortless saving, investing and knowledge-growing experience through its app. The company automatically invests spare change for customers after a purchase. Relying primarily on word-of-mouth marketing, Acorns is planning to roll out a Gen Z-focused IRA or Roth IRA product later this year. It's seen more than 200 percent in year-over-year growth for the past two years, according to Noah Kerner, chief executive. Acorns is also partnering with 150 brands, including Nike and Apple, on a program in which brands invest a percentage of each purchase to the customer's Acorns account.

"This generation believes that corporations, not the government, will drive the biggest social impact," says Kerner. "The program is a place where the companies you shop are investing into your future and that's powerful for a generation that has that belief."

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CORRECTION: An earlier version of this article erroneously said Betterment was among the robo-investing services with minimum investing thresholds. Betterment does not have a minimum.

Web production by Chen Wu.