Sara Constantini, Regional Director for the UK & Ireland, CRIF
In an era defined by economic uncertainty, it has become increasingly difficult for millions of consumers to manage personal finances.
Rising inflation and the increasing cost of living is causing individuals to exhaust not just their earnings, but their savings too.
Now, nearly half (49%) of Brits say that the crisis has made managing their income and spending more challenging. And, as indicated in our latest research, the younger generations have been hit the hardest.
In the UK, a quarter (26%) of young adults (18-34) and a quarter (23%) of middle-aged adults (35-54) found themselves facing peak personal debt. Meanwhile, the older generation – comprising of those aged 55 and above – displayed more financial resilience, with only 7% finding themselves burdened by peak debt.
So, how are Brits coming to terms with and addressing the cost of living crisis? One in five (20%) of young and middle-aged people now consider borrowing a routine practice in managing their finances, as opposed to just 3% of over 55s. This reveals a stark divide in financial strategies when tackling issues of personal finance in the cost of living crisis between generations. And it also underscores the need for financial services to tailor solutions that will help bolster the financial resilience of the younger generations.
The digital economy
From streaming television shows and movies to ordering food, the digital economy means that the general public has access to a wide range of products and services at their fingertips at all times. This is because when things are convenient, accessible, and efficient, they become popular. The financial services industry is no different and can adapt its approach to cater to these preferences.
We know that the younger the demographic, the more likely they are to turn to digital financial services as opposed to traditional bricks-and-mortar banking. In fact, our research shows that only 21% prioritise proximity to a physical bank when choosing a financial institution highlighting the low importance they place on in-person banking.
Financial institutions must also recognise that in light of the current economic environment, there has been a growth in willingness amongst young consumers to share financial data with their banks if it means improved insights and more efficient assistance with financial services. Almost half (45%) of individuals aged 18-34 years old state they would be more willing to share this information. As such, banks and lenders must now adapt and keep up with this shifting consumer demand
Technologies such as open banking – which allows for financial data to be shared between banks and third-party service providers – is laying the foundations for tailored financial products and services. With it, banks can better support their customers during the cost of living crisis, such as predicting a customer’s spending habits to develop products such as bespoke loan packages with customised re-payment plans. This is possible as open banking allows providers to go further in analysing their customers’ financial information such as their creditworthiness, as well as offer advanced warning of potential upcoming financial issues.
Don’t leave the older generations behind
When looking at the older demographics however, this surge in enthusiasm for digital adoption is less pronounced. Only 20% of individuals aged 55 and above express interest in using digital tools to rebuild savings, compared to 53% of the 18-34 age group. As well, a mere 11% of individuals aged over 55 would be willing to share more financial data with their bank if it would help overcome challenges.
Both the younger and older demographics are, however, equally important customers for financial services. And the evolution of the financial services industry should address each group with equal conviction when it comes to supporting them during the cost-of-living crisis.
While older generations might not prioritise digital services to the same extent, it’s imperative that financial institutions not only continue to offer traditional forms of banking, such as in-branch, but also educate them about the benefits of digital financial services and how the different forms work.
Adapt for inclusive financial services
As the sectors’ landscape evolves, acknowledging generational differences, embracing digital solutions, and bringing customers up to speed on the different services offered is imperative.
The younger demographics’ affinity for digital tools outlines the need for banks to prioritise innovative, user-friendly digital platforms, and leverage technologies like open banking to customise solutions. However, its equally crucial to engage older generations, striking a balance and ensuring no demographic is left behind in this digital transition.
If the financial institutions can leverage these digital transformation technologies for consumers of all ages, they can pave the way for a more inclusive financial future for all.
