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Are the Millennial Generation a New Population Group in the Unbanked?

In the digital world, the advent of social media, mobile including the smartphone takeover means that a population traditionally deemed too young to take financially independent decisions are in fact constantly doing exactly that.Purchasing apps, music, online content, books for kindle, clothes through online shopping, food, and deals on Groupon are just a few examples of the financially independent decisions children are making. In fact, not only are they making these decisions and transactions using their iPads and smartphones, they are also influencing parental spending patterns. This begs the question – how are banks helping to educate the millennial generation?

The “unbanked” or “underbanked” are a population of individuals who either do not have access to bank accounts or choose not to use a bank for financial transactions. According to Accent, there are one million unbanked individuals in the UK – which might not seem like many if you consider that half of the world’s population are unbanked[1]. What is incredible is that these estimates fail to include young adult(typically between 7 – 17 years) within the unbanked category. This is because they do not earn an income so traditionally would not need a bank account.

Banks have traditionally concentrated on approaching adults when they enter university and require a bank account to access their student loan and allowance – knowing that it is unlikely graduates will switch accounts after they leave the education system. Having said that, in the last decade high street banks have introduced accounts and products aimed at children over 11 years. While these bank accounts for young adults and teens have been operational in the UK for a number of years, the uptake of these accounts is only about 25% of which only about 30% are active[2]. What these numbers don’t reveal is how many of those 30% are actually getting a financial education and ‘managing’ their own accounts or is likely that parents are ‘managing finances’ for them.

Many financial banking products fail to teach financial planning, budgeting and do not teach young people the value of money. Rather, they serve to drive consumerist habitsYoung adults are thrown into the world of money without adequate guidance and/or education from schools/parents in their developing years. For many, starting university or getting their first job is the first touch point with a bank. The result – rise in poor borrowing practices, improper financial decision making and a vicious cycle of debt and overdraft. The most shocking statistic of payday loans is that 17% of 18-34 year olds have payday loans[3] as of 2012 with the figure set to rise exponentially.

There is a real need to develop products for young adults - not only to help them correctly manage their money but also to educate this population on how to make appropriate financial decisions securely. A few London start-ups have identified this opportunity and have launched products to help young adults manage their finances, a well-known example being Osper. Despite these advances, I believe more is required to really engage young adults on this topic. Financial education classes are not enough, what about using gamification?

Young people need to take their financial education seriously and banks need to help them do this. Why do they need to? Because building a credit rating is one of the main ways you can build an identity in the traditional financial system in the UK. In fact, a healthy credit score impacts your loans, mortgages and even business ventures.

By Akshay Ketkar, Manager at iBe





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