By Marcell King, General Manager, Incent
The demographic makeup of credit union members is a pressing issue for the industry. A Filene Research Institute study found the median age of credit union members has risen from 42 to 52 over the past two decades. Additionally, a recent study by CUNA found that only 7% of credit union members fall within the 18-24 age range, compared to 18% of the total U.S. population.
This disparity indicates credit unions are not resonating with younger generations, inhibiting growth and sustainability. Third-party fintechs, neobanks and digital-first banking competitors have captured younger consumers’ attention and deposits. Without a dedicated youth engagement strategy, credit unions are at risk of losing family relationships, member attrition, deposit leakage and diminished brand relevance.
Capturing the Next Generation of Members
A youth banking platform provides a unique opportunity not only to engage and educate younger members but also to build long-term relationships and brand loyalty. In contrast to the more traditional “youth accounts” that mirror the parent’s account, a true youth banking solution should be designed specifically for kids and teens, providing inventive and fun ways to encourage saving, giving and positive money management skills, while providing financial literacy tools designed to build a solid financial foundation for the future.
The Center for Financial Literacy indicates financially literate individuals make better personal finance decisions. Credit unions have long championed financial literacy, offering programs that expose students to money management skills. Providing a youth banking solution designed for the next generation of members aligns with the long-term movement of the credit union industry to empower members, and expand the reach and impact of these efforts, instilling lifelong money management skills.
The Future of Youth Banking
This is not a new concept for most credit unions. However, legacy youth banking solutions have yielded little to no long-term benefits. Traditionally, a youth banking account has consisted of a sub-account attached to a parent or guardian’s account that mirrors the adult’s experience. This model provides limited benefits to both the younger member and the credit union and is not sustainable. Alternatively, credit unions have partnered with a third-party fintech to offer a youth banking product controlled by the fintech, meaning all deposits and interchange fees are held at a sponsor bank. Once the member turns 18, they are left without any account and must find a new financial institution to open an account. By this point, the young member has had little to no interaction with the credit union that provided the youth banking service and, therefore, has no brand loyalty.
To be successful, credit unions must take a more sustainable approach when implementing a youth banking service. With limited resources, it is necessary for most credit unions to partner with a technology provider. Still, the institution should remain in control of the branding, retain all deposits and receive any interchange fees. Additionally, a youth banking solution should integrate with the credit union’s existing digital and mobile banking applications, providing a seamless experience designed specifically for a younger demographic to encourage saving, giving and positive money management skills.
An engaging platform involves the entire family, fostering long-term financially responsible habits and promoting financial literacy. Finally, and perhaps most importantly, a more effective approach to youth banking creates lifetime members. When a member turns 18, the youth banking account automatically converts to an “adult” transition to one of the share accounts, maintaining historical transactions that strengthen the relationship and provide yet another service that provides stickiness and member loyalty. Combining financial education with real-world banking experiences, a personalized youth banking experience equips children and teens with the skills to become financially responsible adults.
Lifecycle Banking: The Ultimate Goal
Strategically, credit unions should be focused on providing unique and meaningful services to each member at every stage of life. Integrating youth banking is a critical first step in lifecycle member engagement, helping credit unions build brand awareness and maintain member relationships. Youth banking further builds on the credit union movement to support communities and empower individuals financially. In addition to building brand awareness, youth banking is vital to ensuring credit unions remain relevant and continue to grow.
Engaging young members early fosters relationships that extend into adulthood. Members who start with a credit union are more likely to continue using its services for loans, mortgages and retirement planning. Credit unions that ignore this opportunity or fail to resonate with the next generation risk losing multigenerational member relationships, shrinking deposit bases and missed revenue opportunities.