Making A Case For the 18-to-24 Year-Old Market

By Jon Haller
Director of Market Research,
Credit Union National Association

Just one in four consumers 18 to 24 (26%) belong to a credit union--consistent with the penetration levels recorded over the past several years, but well below the 36% member-penetration level among adult consumers, as a whole.

Part of the reason why penetration levels for this group are so low is that they simply don’t know what credit unions are and how they can benefit them. Past CUNA studies have shown that fully three-fourths of eligible nonmembers 18 to 24 are not very, or not at all familiar with credit union services, even while the majority of them, do in fact, know they are eligible to become members.

Another reason why the penetration of this group is so low is that many credit unions--for good reasons or not--simply don’t aggressively pursue these consumers. Credit unions’ primary gripe? Many view young consumers as high-transaction, high-cost, low-profitability consumers who will stay with the credit union for only a short period of time before leaving it. While this may hold true to some extent--perhaps especially among college-student- and military-based credit unions--there are a number of reasons to believe credit unions are getting only half, or just a few "chapters," of "the story."

In fact, by placing a low priority on attracting this group, many credit unions are missing out on a tremendous opportunity to improve their current lending volumes and, at the same time, help ensure that they'll be able to maintain strong lending levels five to ten years down the road.

True, these young members will more likely than not carry among the lowest savings levels and conduct among the highest numbers of ATM/debit card transactions. That’s where some of the cost issues come into play.

However, the other side--the good, and typically less-known, side--of the story is that members 18 to 24 are also among the age groups most apt choose the credit union as their primary financial institution (PFI). According to CUNA’s 2002 National Member Survey Report, nearly half of these members consider their credit union to be their primary provider (see figure). And high PFI loyalty also yields strong loyalty with respect to the use of the credit union's various programs, including its profitable ones--its loans.

In terms of the contention that young members will have a short shelf-life at the credit union, a past study indicated that about 30% of nonmembers 18 to 24 had, in fact, been a member at one point in time, but then discontinued the relationship. This figure notwithstanding, the information still suggests that many 18-to-24 year-olds will stay around for longer-term relationships with you and will, therefore, help you maintain strong lending levels several years down the line, when they enter the prime borrowing stages of their financial life cycles.

Moreover, if some of your young members are leaving after short relationships, it could be that they left to another credit union. If that's that case, at the least, the credit union movement continues to benefit.

One way to maintain some type of long-term relationship, even if your young members ultimately move on, is to get one of your credit cards into their hands. Continued use of this product, compared to, say, checking accounts, is considerably less sensitive to members' geographical re-locations.

Members aged 18 to 24 already bring much of their loan business to the credit union. In addition, today's 18-to-24 year-olds are your future new-car, home equity and 1st mortgage loan borrowers and strong credit card users. As such, they will be an integral part of your credit union's future success. By increasing your efforts to attract young consumers and establish strong account relationships early on, you'll experience not only short-term, but, in many cases, future benefits.

STRATEGIC CONSIDERATIONS

• Consider placing increased emphasis on attracting more younger consumers to your credit union.
• Persuade your young members to get your credit card, give them an adequate credit limit, and to ensure continued use--regardless of whether they maintain long-term use of your other services--increase their credit limits when good payment histories and/or improved financial situations (i.e., the addition of a working spouse and/or increased income levels) dictate it.
• Some of the keys to attracting young consumers include:
  • Charging low service charges/fees
  • Offering low-fee (or, preferably, no-fee) checking accounts
  • Better spreading the word about the credit union’s benefits and range of services
  • Turning to your current members (i.e., the parents of the 18-to-24 year-olds) to recruit them
  • Providing services such as PC banking, electronic bill payment and student loans.

Next month’s topic: The Impact Of Members’ PFI Status On Your Product Market Shares

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