Unbanked Millennials: A Matter of Perspective

Even while the nation has continued to emerge from recession, so, too, has the percentage of 18-34s eschewing checking and savings accounts. As of 2015, some 55% of 18-34s are “unbanked” in this regard, up from less than 50% in 2008, according to the Packaged Facts report Unbanked and Underbanked Consumers in the U.S., 4th Edition.

Like the population as a whole, over the past five years, 18-34s are less commonly institution unbanked: some 17% are institution unbanked—they have neither a checking nor a savings accounts, nor have they used any bank, credit union or savings & loan institution in the past 12 months. This represents a sharp 41% drop from 2008, when the percentage stood at 29%.

On the one hand, this signifies a shift among members of this age group to account funding methods falling outside of traditional checking and savings accounts, in particularly emerging banking models. The trend clearly bodes ill for major banking institutions that do not adapt to the evolving needs of this group, which prize internet- and mobile-driven solutions, see “checking” as antiquated and irrelevant, are likely savvy price shoppers, and are quite comfortable with online-only financial service models.

But at the same time, it suggests that the younger unbanked have not forsaken traditional banking for financial services needs that fall outside of checking and savings accounts—far from it. Viewing the data another way:

• In 2008, some 20% of unbanked 18-34s had nevertheless used a bank, a credit union or a savings & loan institution in the past 12 months for some other kind of product or service.
• In 2015, the percentage of unbanked 18-34s using these financial institutions for something else had risen to almost 38%.

These activities could range from obtaining major loans to picking up a prepaid card, getting a money order or cashing in coins. The bottom line is that the theory that Millennials are abandoning banks may be significantly overblown, depending on how their banking relationships with those banks are being defined. By one measure, traditional financial institutions are clearly bleeding younger checking and savings accountholders, but by another much broader measure, usage is on the rebound. The question is whether that usage translates to major-ticket revenue in the form of major loans or investment vehicles, steady, incremental revenue in the form of credit cards and prepaid cards, or some other source—or merely an occasional piggyback on branch convenience for minor products or services.

-- by David Morris