Know your customer: Millennials
As a business leader, knowing your customers is essential. After all, you need to know who these consumers are and what they care about if you're going to gain and maintain their trust and interest.
With that in mind, this blog will serve as the first installment in a series, all focused on helping you better understand - and therefore satisfy - a key customer demographic and its credit challenges. First up: millennials.
The first question that needs to be answered here is, who are millennials? "Millennial" is a term that's used very frequently, but it's not always clearly defined.
"There are 75.4 million millennials in the United States."
Pew Research considers millennials to be anyone who was between the ages of 18 and 34 as of 2015. By that reckoning, there are now approximately 75.4 million millennials in the United States. Critically, Pew Research pointed out that the number of Baby Boomers (those aged 51-69) in April 2016 stood at 74.9 million, meaning that millennials are now the single largest living generation in America.
Obviously, that means that all business owners need to make millennial outreach a priority if they want to remain competitive in the coming years.
So when it comes to consumer credit, how are millennials faring?
The answer: not that great. In a recent study, FICO found 28.1 percent of millennials have traditional credit scores between 300-579, while only 19.1 percent of the total population's credit ratings fall into this range. On the other end of the spectrum, 40.7 percent of the total population have FICO credit scores above 740, but only 22.4 percent of millennials have reached this high mark.
It's important to note, though, that millennials actually have significantly less debt on average than older generations, according to Experian's research. Specifically, millennials' average debt totaled just over $52,000, while Generation X held $125,000 in debt.
This reflects an issue this blog has covered in the past: Traditional credit scores do not tell the whole story. Millennials don't have nearly as much debt as their older peers, and yet the younger generation has the lower credit scores.
Why? There are several likely reasons. For one thing, millennials simply haven't been around long enough to build up lengthy credit histories, which play a major role in determining a person's credit rating. Further exacerbating the issue, 63 percent of millennials (defined more narrowly as 18-29 year olds) did not have a single credit card, according to a survey from Bankrate and Princeton Survey Research Associates International. Less than one-quarter had one credit card, and only 8 percent has two of those cards or more. By choosing not to use credit cards, millennials are hampering their traditional credit scores.
The biggest takeaway from this is the need for business leaders to accommodate millennials' credit situation if they want these consumers to become customers. And one of the best ways to seize this opportunity is by embracing nontraditional credit.
Nontraditional credit is particularly well-suited for millennials because it takes into account payments for rent, utilities and other financial obligations that millennials are more likely to take on. Many millennials who may have less than ideal traditional credit scores will actually be totally credit-worthy, and nontraditional credit ratings will reflect that reality. Companies that leverage nontraditional credit can therefore become more welcoming of millennials customers, without taking on any excessive degree of risk.
What's more, countless millennials will be appreciative of those lenders and businesses that open their doors when other companies, relying entirely on traditional credit, turn these young consumers away.
Check back soon for more insight into your customers' credit needs.