Millennials on Investing, Debt, and Banking [Chart]
Surveys reveal Millennials to have conflicting views on financial matters.
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Millennials are the most confident generation regarding their financial future. In fact, recent survey results show that 65% of Millennials feel confident about their future finances, compared to 52% of Gen X, 50% of Baby Boomers, and 59% of the Silent Generation. This is not a surprising find, as one of the defining traits of the Millennial group is high self-confidence.
The problem is that this confidence seems to conflict with other survey findings.
In reality, it looks like many Millennials could still have a steep learning curve ahead of them in the financial realm.
The first red flag is with debt. Only 48% of Millennials know their credit score, and just 37% are confident in their ability to manage their credit.
Millennial student debt is at sky-high levels, and many are struggling to pay. Even the Federal Reserve noted that the delinquency rate for student loans in repayment is a staggering 27% in the United States.
Another potential concern arises with the generation’s attitudes towards investing and building wealth. Despite their confidence in their financial future, 46% of Millennials think investing is “risky”, 60% distrust financial markets, and a whopping 70% hold their savings and investments in cash.
While there are some reasoning for these numbers individually, as a whole they seem to paint a broader picture that Millennials are afraid of entering the market in any capacity. As a result, it would appear that they hold onto their money in cash while interest rates are at their lowest in human history.
Historically, the middle class has built much of their wealth through investing. While it is true that Millennials witnessed the failures of Wall Street first-hand during the Financial Crisis, it doesn’t change the fact that investing will likely play a key role in building their financial futures. Millennials do not have to only own stocks either, as there are plenty of market instruments, hedging strategies, and stores of value out there that can protect against market downside at any risk tolerance.
Further, 87% of Millennials feel empowered to make investing decisions on their own. While we would agree that investing for yourself can be one of the most rewarding ways to build a strong financial future, not everyone can be an expert in personal finance. That’s why people hire brokers or investment advisors.
When it comes to opinions on these types of professionals, Millennials have contradicting feelings. For example: 58% of Millennials are interested in robo-advisors, yet at the same time 64% say that a personal relationship with an advisor is important.
Cash and Banking
Millennials also have unorthodox views on cash and banking. As a generation of people that grew up in the digital age, 40% of Millennials would stop using cash altogether if cards could be used for all transactions.
Further, 49% would consider using financial services from tech companies like Google or Facebook. In contrast, only 16% of people in older generations would consider a similar move.
This disparity is part of the reason why bank executives today are unaware of the very technology startups gaining traction in the market, and that seek to unseat them.
Why Anti-Money Laundering Should Be a Top Priority for Financial Institutions
Anti-money laundering cost financial institutions about $25.3B in 2018. How can organizations improve their processes & gain a competitive advantage?
Why AML Should be a Top Priority for Financial Institutions
The to-do list for any financial executive is surely daunting. From navigating technology changes to managing talent effectively, there’s many initiatives competing for attention.
One issue that’s been in the headlines for many years is anti-money laundering (AML). When criminals are able to successfully hide the illicit origins of their cash, both the financial institution and society suffer. So, what makes AML more important now than it has been in the past?
Rising up the Priority Ladder
Today’s infographic from McKinsey & Company explains the factors which have brought anti-money laundering urgently to the forefront in recent years.
1. Regulatory Action
Enforcement actions related to AML have been on the rise. Since 2009, regulators have levied approximately $32 billion in AML-related fines globally.
2. Threat Evolution
Criminals are using more sophisticated means to remain undetected, including globally-coordinated technology, insider information, and e-commerce schemes.
3. Reputational Risk
AML incidents put a financial institution’s reputation on the line. There’s a lot at stake: today, the average value of each of the top 10 bank brands is $45B.
4. Rising Costs
Most AML activities require significant manual effort, making them inefficient and difficult to scale. In 2018, it cost U.S. financial services firms about $25.3B to manage money laundering risk.
5. Poor Customer Experience
Compliance staff must have multiple touch points with a customer to gather and verify information. Perhaps not surprisingly, one in three financial institutions have lost potential customers due to inefficient or slow onboarding processes.
It’s no wonder anti-money laundering has now become a top priority for many CEOs in the financial industry.
A Wave of Innovation
In the last five years, there has been an explosion of “RegTech” startups—companies that address regulatory requirements using technology.
Global RegTech Investments, 2014-2018
|Year||Amount Invested (USD)|
Over 60% of these are focused on solving Know Your Customer (KYC) and AML issues. What does this technology look like in practice?
A hypothetical U.S. retail firm, ABC Electronics, applies online to open an account at AML Innovators Bank. Their information is verified and screened using a fully automated process.
If they are determined to be a lower-risk client, they will be fast-tracked through the approval process with decisioning in six hours or less. For high-risk clients, decisioning occurs within about 72 hours.
ABC Electronics requests to send multiple international wire payments to various beneficiaries. Each transaction is automatically screened based on various factors:
- A same name or subsidiary transfer carries the lowest risk
- Transfers to a known, similar industry in a high-risk jurisdiction carry medium risk
- Transfers to an unknown industry in a high-risk jurisdiction carry high risk
These transaction scores, combined with algorithms that track a client’s expected vs. actual transaction behavior, will update ABC Electronics’ risk rating in real time.
As risk updates occur, ABC Electronics’ rating is integrated into AML Innovator Bank’s overall portfolio risk.
Senior risk management teams will be able to view a heat map that highlights the highest risk areas of the business.
Structural Change, Big Gains
Just as financial crimes continue to evolve, so do AML schemes.
How can organizations stay ahead of the game? They can focus on actively managing risk, deliberately investing in technology and analytics, and prioritizing areas where RegTechs will have the highest near-term impact.
By investing in AML, financial institutions create competitive advantages:
- Improved efficiency
- Superior customer experience
- Readiness to adapt to new regulations
- Reduced reputational risk
- Ability to attract top talent
With such benefits on the table, one thing is clear: Anti-money laundering efforts are more important now than they have ever been.
Visualizing the Importance of Trust to the Banking Industry
In the digital age, the issue of trust is emerging as the game-changing factor in how consumers choose financial services brands.
Visualizing the Importance of Trust to the Banking Industry
In the digital age, money is becoming less tangible.
Not only is carrying physical cash more of a rarity, but we are now able to even make contactless payments for many of the products and services we use on the fly.
Our financial transactions are starting to be analyzed and optimized by artificial intelligence. Meanwhile, investments and bills are paid online, and even checks can now be deposited through our phones. Who has the time to visit a physical bank these days, anyways?
Trust in the Digital Age
The migration of financial services to the cloud is increasing access to banking solutions, while breaking down barriers of entry to the industry. It’s also creating opportunities for new service offerings that can leverage technology, data, and scale.
However, as today’s infographic from Raconteur shows, this digital migration has a crucial side effect: trust in financial services has emerged as a dominant driver of consumer activity.
This likely boils down to a couple major factors:
Financial services are becoming less grounded in physical experiences (using cash, visiting a branch, personal relationships, etc.)
- Personal Data
Consumers are rightfully concerned about how personal data gets treated in the digital age
Further, the above factors are compounded by memories of the 2008 Financial Crisis. These events not only damaged institutional reputations, but they elevated trust to become a key concern and selling point for consumers.
Trust, by the Numbers
In general, trust in banks has been slowly on the rise since hitting a low point in 2011 and 2012.
At the same time, consumers are consistently ranking trust as a more important factor in their decision of where to bank. To the modern consumer, trust even outweighs price.
Top Five Factors for Choosing a Bank:
- Ease and convenience of service (47%)
- Trust with the brand (45%)
- Price/rate (43%)
- Service resolution quality and timeliness (43%)
- Wide network coverage of ATMs (40%)
It’s important to recognize here that all five of the above factors rank quite closely in percentage terms. That said, while they are all crucial elements to a service offering, trust may be the most abstract one to try and tackle for companies in the space.
With this in mind, how can financial services leverage tech to increase the amount of trust that consumers have in them?
Tech Factors That Would Increase Consumer Trust:
- Reliable fraud protection (36%)
- Technology solves my problems (13%)
- Useful mobile application (9%)
Better fraud protection capability stands out as one major trust-builder, while designing technology that is useful and effective is another key area to consider.
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