The United States is getting older. Families are having fewer children, but modern medicine is extending people’s lives. All the meanwhile, the baby boomer generation is entering retirement.
A consequence of having more senior citizens is having less Americans in the working world. The impact this is going to have will not only affect the U.S. labor force, but also slow economic growth, and rates of saving. The individuals who are working will be burdened by having to support a larger group of retirees, much larger than the labor force. Additionally, there are millions of immigrants appearing each year.
At the same time, financial service institutions continue to face challenges and unprecedented industry changes, such as increased regulation and shifting customer demographics. Other challenges finance institutions face include their disparate technology, and their dated systems and process. The influx of more institutions also creates heightened competition that makes them vulnerable to attrition.
Above all that, the most pressing issue facing finance institutions in the U.S. right now is the fact that the target demographic is shifting, in a big way. Banks, brokerages, investment firms, and insurance companies are set up to best service older, more mature individuals. However, a massive influx of young technologically hip Americans are looking to the Internet for financial advice and management. However, financial institutions need to pursue the younger demographic, not only because they will be responsible for supporting the economy, but because the manner in which they [younger generations] engage with their assets is completely different and unique.
Take a look at Prosper, an online people-to-people lending marketplace. Prosper works similar to eBay, but instead of listing and bidding on items, people list and bid on loans using Prosper's online auction platform. People who want to lend set the minimum interest rate they are willing to earn and bid in increments of $50 to $25,000 on loan listings they select. Borrowers create loan listings for up to $25,000 and set the maximum rate they are willing to pay a lender. Then the auction begins as people who lend bid down the interest rate. Once the auction ends, Prosper takes the bids with the lowest rates and combines them into one simple loan.
This new demographic is also engaging with online "social networks" on Google and Yahoo that let people exchange financial advice. They are also looking into Wal-Mart as a major provider of financial services for lower-income people reluctant to use a traditional bank. Wal-Mart does over 2 million financial transactions each week.
These examples are just a few of how the younger generations are uniquely handling their finances. It is imperative that financial institutions recognize their new target audience, and create new and interesting ways of engaging with them.