Why is Family Engagement Important in Banking?
One of the most common mistakes in the banking industry today is viewing clients as individuals and spouses instead of families. It’s true that a person and their partner sign on the dotted line for a mortgage, but in practice this is a one-dimensional—if not outright distorted— view of what’s actually going on.
The truth is, most economic choices are much more communal than they seem at first glance. Important financial decisions made by parents often include consideration of children and conversations with close relatives. Also, young people frequently turn to parents and grandparents for financial advice, and in time those roles may reverse when children become more responsible for their parents’ care.
If you want to get the best outcomes for your clients, it’s not enough to know what they want to do: you have to understand why. Is family engagement important in banking decisions being made by my client right now? If it’s a major one, the answer is “almost definitely”, because behind that person sitting in the chair is an invisible cohort of family members who all might be factoring into the discussion at hand.
Family engagement is about bringing those trusted voices out of the background and developing a more complete and open picture of financial health, producing better relationships, and creating greater prosperity for your clients.
Family Engagement And Trust
For Millennials and Gen Z, the data is in: 40% of them think their family and friends are the best source for financial advice. That’s two percent higher than the number who trust a professional financial advisor.
You heard that correctly. If you’re talking to someone under 40, they trust their family with money more than they trust the person running the bank. That’s a sobering thought, and a strong reminder that personal relationships are everything in the banking industry today.
College Debt Brings Families Together
It’s difficult to develop a methodology for a question of trust. The 2008 collapse didn’t help, but the most likely culprit is college debt.
The largest financial decision facing most people under 20 is college tuition, and as it continues to rise the shockwave of that burden is reverberating farther and farther into their financial future. The average college debt in America is almost $30,000, which is most of a down payment on the average house. It is no coincidence that Millennials submitted 39% of all rental applications in 2021, and that number is also trending up.
It is therefore no surprise that nearly 50% of people under the age of 40 still receive regular financial help from their parents, and that’s not changing any time soon. Parents are also borrowing at historically unprecedented rates to help their kids pay for college when student loans have been exhausted. 3.4 million parents have taken over $87 in personal loans from the ParentPLUS program, which is essentially a federal student loan program young people can leverage through mom and dad.
All of this suggests that the embryo of a young person’s financial future is going to be tended in the family nest, and that incubation period is going to extend into middle age for the student and likely to the end of their parents’ natural lives.
The Impact of Covid
Heaped on top of the pile is a 2020 survey indicating that 52% of young adults were living with one or both of their parents. Some of this was a bump from the pandemic, but the percentages were already in the high 40’s before it started.
These are Depression Era numbers, and with inflation and gas prices dominating the headlines there’s every reason to think families will only be more economically and physically bound together as time goes on.
Getting Everyone in the Room
Relationship banking is a critical part of any healthy financial institution’s business strategy, and it helps develop longevity with account holders that naturally extends down the family line. It’s better for banks, and it’s better for clients.
In traditional terms, relationship banking is a vertical perspective on wealth creation. You get to know a client better to connect them with products and services your bank has to offer, and this integration naturally brings their children into the fold over time.
However, today’s ecosystem requires a broader view of financial health, and the answer “why” is family. Engagement in banking importantly focuses on connecting individuals with products and services, but the family—not its members— is fast becoming the basic unit of wealth creation. It’s critical for financial institutions to realize that future prosperity is an intergenerational pipeline, not an event.
Now, relationship banking is a golden opportunity to broaden family engagement in long-term financial planning. Conversations about money can be awkward, particularly when they involve things like end of life planning, but money is increasingly dominating conversation around the dinner table as it is.
Creating a Better Future in a Challenging World
So why is family engagement important in banking? Because wealth creation today is a game of chess, not checkers, and there are a lot of moving pieces that need to work together to win. Banking strategies that encourage families to be open about finances, communicate effectively, and develop a collective vision of their economic future will be more successful than parents and children who go it alone.
From opening a bank account for a 7-year-old to legacy planning and will creation, relationship banking offers many opportunities for families and financial institutions to start building those bridges, and it will set your clients up to make the best choices they can to ensure their prosperity for generations to come.
The Postage is committed to helping families realize their best financial future together, with a portfolio of online tools for will creation, estate planning, and precious family data storage. Spend your time making memories with your family, not worrying about the future.