By: Joe Gillen
In the wake of the Great Recession, many young Americans grew to perceive credit as a dangerous financial product. Individuals nationwide may have seen their parents or grandparents lose their savings, retirement income or homes during this period, and in response, young adults are now turning their backs on all types of credit products to protect their finances.
Credit Unions Online cited research from a recent Pew Study, which found that millennials in particular - those under 35 - are increasingly avoiding homeownership, auto ownership and even credit cards to avoid debt. While taking a measured approach toward credit is smart for individuals of all ages, many analysts are concerned that this scenario could do more harm than good to both young adults and the economy. For example, individuals must take on some credit in order to build a healthy credit score. Without a solid score, consumers may face higher insurance rates, fewer job prospects, higher down payment requirements and elevated interest rates.
Further, mortgages and auto loans enable borrowers to work toward owning an assets, which can be crucial to their long-term security. Despite these facts, many young adults are largely unaware of the harm they may be doing to their financial prospects by avoiding debt altogether, making it important for community banks and credit unions to develop financial education programs to better inform their younger customers and members.
Educating millennials on the benefits of credit
Many young adults may be fearful of credit due to a lack of knowledge about how to shop responsibly for the best products and interest rates, budgeting effectively for payments and building a successful credit profile. However, this presents an opportunity to credit unions and community banks to educate their younger customers on how to best manage credit products to enhance their financial futures and build opportunities. Many institutions may assume that young customers coming from educated backgrounds are well-versed in these topics, but it's important to remember that many young adults may not have been exposed to basic financial concepts in their youth and lack the knowledge to make good decisions.
Providing resources to these individuals in the form of webinars and seminars, budgeting tools and informational materials may help build confidence among young adults. It may also allow local institutions to build trust and establish a rapport with consumers, which customer satisfaction research shows can build customer loyalty and retention.