How to Give Millennial-Friendly Financial Advice

financial advice millennials

People often need financial advice that’s best suited to meet their needs, which differ from one generation to another. You cannot expect millennials to consume the same financial advice as baby boomers. How Millennials Manage Their Money In 2015, the number of millennials stood at 75.4 million while the number of baby boomers stood at […]

financial advice millennials

People often need financial advice that’s best suited to meet their needs, which differ from one generation to another. You cannot expect millennials to consume the same financial advice as baby boomers.

How Millennials Manage Their Money

In 2015, the number of millennials stood at 75.4 million while the number of baby boomers stood at 74.9 million. Millennials are described as anyone who is between 18 to 34 years old. Baby boomers, on the other hand, are between 51 to 69 years old. Between the two age groups is Generation X, which is made up of individuals who are 35 to 50 years old.

According to recent statistics, the median net worth of the top 20% of millennials is eight times higher than that of the lower 80% of this group. This is twice the ratio reported in the year 2000. Millennials also have a different saving culture compared to their predecessors. For instance, investors aged between 21 to 36 years of age hold more than half of their portfolio in cash with only 28% going into stocks. Older generations, on the other hand, held only 23% of their portfolio in cash with 46% going into stocks. It has also been revealed that 40% of millennials worry about their finances at least once a week.

Research studies have revealed that millennials are 1.5 times more likely to discuss their finances online. What is shocking is that a third of consumers aged between 18 to 29 years old have never had a credit card.

Growth of Tech-Driven Personal Finance Services

Over 80% of millennials own a smartphone and the number is steadily increasing. Over 89% of millennials usually check their mobile devices within the first 15 minutes of waking up. They also expect their financial institutions to be mobile and web-friendly. On the other hand, over 87% of millennials seek financial thought leadership through at least one social network.

What Millennials Look for When Picking a Financial Institution

Millennials have two main financial priorities; paying off their student loans and other debts, and saving for the future. On average, they spend 43% of their income to pay down their debts and put away 38% of their income as savings for the future. Three out of five millennials would like their bank to be a financial partner as opposed to just another business that feeds off their sweat. What is shocking is that only 32% of millennials feel like their bank understands them.

Before making a purchase, 84% of millennials always consider the values of a business or brand. If they are not in line with their own values, they always shop around for a more suitable brand.

10 Tips for Connecting with Millennials

  • Think Mobile First – To connect with millennials, you need to have a mobile app through which they can access your services. Alternatively, you should design a website that is mobile friendly.
  • Help Them Walk Before They Run – Financial growth is normally gradual, so you should develop solutions with low barriers of entry and can help millennials to manage multiple financial priorities as well as any urgent financial priorities they may have.
  • Give Credit a Makeover – Since millennials have different needs and values, you should reposition your credit products to align with those values and needs.
  • Make Financial Planning a Gateway
  • Consider Everyone a Competitor – Do not just look at the real world for competitors because millennials use social networks to get financial thought leadership, so you also need to offer better thought leadership through the same platforms.
  • Make it Rewarding
  • Make it Personal and Actionable
  • Educate Emphatically
  • Provide Holistic Solutions – To fully connect with millennials, you should provide solutions that take their priorities into considerations and can help resolve them.
  • Connect Visually


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To learn more, checkout the infographic below created by Ohio University’s online Master of Financial Economics program.

Pros and Cons of Peer-to-Peer Lending for a Small Business

P2P lending

The peer-to-peer (P2P) lending business model enables small businesses (SMBs) to raise capital without necessarily approaching traditional lenders such as banks. More specifically, this business model gives entrepreneurs an online platform they can use to communicate and solicit funds directly from potential investors. To learn more, check out the infographic below created by Norwich University’s […]

P2P lending

The peer-to-peer (P2P) lending business model enables small businesses (SMBs) to raise capital without necessarily approaching traditional lenders such as banks. More specifically, this business model gives entrepreneurs an online platform they can use to communicate and solicit funds directly from potential investors.

To learn more, check out the infographic below created by Norwich University’s Online MBA program.

An Overview of P2P Lending

Modern P2P lending activities normally take place online where borrowers and lenders join P2P online platforms such as Prosper and Lending Club. People typically register as either borrowers or lenders. After joining, a borrower submits a loan application for review along with a plan detailing how he/she intends to spend the money raised. This stage normally determines whether a loan application is viable and aligns with the borrower’s investment strategies. Upon accepting a loan application, the review team publishes it on the P2P platform so that it is visible to all investors. In most cases, a loan application remains visible until it is fully funded or taken down by either the borrower or the P2P lending platform.

Differences Between P2P Lending and Traditional Financing

For starters, P2P lending platforms run their operations entirely online. As such, they typically have minimal personal contact between both borrowers and investors. Moreover, they require minimal personal information from the parties involved, which is considered good news for advocates of digital privacy. Another major difference between P2P platforms and mainstream lenders is that the P2P platforms do not lend their own money. Instead, they act as matchmakers that bring borrowers and lenders together. Nevertheless, P2P platforms offer investors some degree of assurance in the form of security notes that can be purchased on their sites. Unlike traditional financiers, P2P lending offers better interest rates, making the service highly attractive to value investors. In general, P2P lending offers better returns than financing opportunities offered by traditional lenders.

P2P Lending Platform Revenue Models

Like most web platforms, P2P platforms must generate revenue to cover their operational costs. Firstly, loan applicants are charged origination fees that vary depending on factors such as platform policies and the total loan amount. In addition, P2P lenders generate revenue by deducting and retaining a percentage of the interest charged to investors. You can think of these deductions as loan servicing fees. Peer-to-peer lenders also earn money via late fees.

Benefits

Compared to borrowing funds from a traditional lender, P2P loan application and processing is much faster. In fact, most loan applications are approved or denied almost instantly and those that make it through the approval stage are usually processed within two weeks. The collective funding approach underpinned by the P2P lending model protects investors from crippling financial losses. Small businesses also benefit immensely because they can easily access funding even with a poor credit history. Additionally, the minimal paperwork involved means fewer bureaucratic processes. Another major benefit is the lower likelihood of loan denial. Finally, the peer-to-peer lending model is predicated on a simplified customer experience. For instance, most P2P financing platforms are accessible via dedicated mobile apps, meaning investors can review funding applications while borrowers can check interest rates and application updates from the comfort of their homes.

Drawbacks

In spite of its benefits, the P2P lending industry is a relatively new financial model that is yet to be comprehensively regulated. This means investors may be unable to accurately determine the default risk of borrowers. It is also worth noting that borrowing funds via P2P lending platforms could substantially hurt your credit score because such platforms are set up to accept individual borrowers, not legal entities such as small to medium enterprises. This is particularly important because a low credit score would make it difficult for you to access financial services from mainstream lenders. P2P platforms also do not cultivate relationships with borrowers or lenders, which is the opposite of the know-your-customer approach adopted by banks. For this reason, there is little information about the P2P lending industry compared to the traditional financial sector. This aspect alone can have a negative impact on interest rates.

P2P Lending Statistics

The P2P lending industry dates back to 2005 when the first platform, Zopa, was launched in the UK. Shortly thereafter the Lending Club and Prosper, among others, were launched in the US. Since 2007, the volume of transactions via US-based P2P lending platforms has grown by 84% with loans worth $5.5 billion issued in 2014 alone. By 2025, the P2P lending industry will reach $150 billion or more. Some of the leading players in the P2P SMB lending space include Kabbage, Funding Circle, and OnDeck. OnDeck went public in December 2014 and boasts a market valuation of $1.8 billion, while Kabbage has raised $135 million in seed funding at a valuation of $1 billion. The Funding Circle has raised $150 million from investors at a valuation of $1 billion.

P2P Lending Trends

There is no doubt that advancements in information and communication technologies (ICTs) have boosted the fortunes of the P2P lending industry. As such, it is quite popular with tech-savvy Millennials who also account for 15.7% of small business owners. This was confirmed by a survey carried out by Morgan Stanley, which found that Millennials prefer faster, cheaper, and more convenient forms of credit. In addition, Millennials more than any other American age demographic favor web transactions conducted via mobile apps. Compared to Generation X, for instance, Millennials running small businesses are five times more likely to seek funding via P2P platforms.

Conclusion

The peer-to-peer lending business model is a novel capital-raising model that enables entrepreneurs to seek funds from a group of investors. Some of the key benefits of P2P lending include minimal paperwork, low interest rates, low risk of loan denial, simplified customer experience, and faster loan application processing. Nevertheless, P2P lending has drawbacks including lack of proper regulatory frameworks, minimal or no personal interactions, and high likelihood of negative credit score impact. In spite of these challenges, the P2P lending industry is growing fast, especially in the US where platforms such as the Funding Circle and Kabbage disbursed loans worth $5.5 billion in 2014 alone.

Norwich University Master of Business Administration Online