Banks and big financial companies are in for a fight to win over and keep people in their 20s and early 30s, says entrepreneur Alex Cohen, 23.
“Millennials have huge distrust for the banks,” said Cohen, who grew up in Wellington. “They believe they’re getting hit with too many fees.”
His start-up firm, birchfinance.com, offers an online tool to help people maximize their credit card rewards. It is one fledgling venture among many, but a certain spirit emerges across the landscape: Optimize life down to granular detail through tech when you can. Pay attention, or get some tech that pays attention for you.
“The average shopper misses out on over $200 a year in credit card rewards by using the wrong cards in their wallet,” Birch’s website says.
This much seems clear: millennials are not turning out to be carbon copies of their parents and grandparents. They are two to three times likely than other age groups to close all accounts with their primary financial institution and switch banks, according to a survey last year by Fair Isaac Corp., the people who produce the FICO credit score. The leading reason they bolt: High fees.
“The increased volatility in this 25-34 year-old age group can be a costly exercise for incumbent banks, due to the increased marketing and operational costs required to win new customers, especially if they are only replacing the ones that have left,” said Joshua Schnoll, senior director for FICO. “Banks will need to address millennials’ sensitivities to bank fees and a desire for convenience in order to arrest churn and build loyalty.”
For their part, big financial companies say they are starting to recognize millennials are different.
Take attitudes to retirement. A survey by Merrill Edge, an investing service that combines the resources of Merrill Lynch and Bank of America, found 83 percent of millennials plan to work in retirement, whether by choice or necessity. That turns completely on its head the current situation for people already retired — 83 percent do not work.
The national survey featured particularly heavy sampling in South Florida and eight other markets, officials said.
“Retirement as we know it today will change dramatically in years to come due to a number of short-term factors that can impact long-term planning,” said Tracy Cooper, a Merrill Edge sales performance manager based in Palm Beach Gardens. “Our younger clients say they are uncertain about their retirement savings, and don’t know how much is enough. Others are skeptical that they will ever be able to fully retire.”
Factors such as the rise of the “gig economy” — where temporary jobs are more prevalent and don’t always come with traditional benefits — have led many millennials to rank an employer’s retirement plan as the most important factor when accepting a new position, Cooper said.
Whether by choice or because of tighter access to credit, millennials tend to carry less credit card debt, statistics suggest.
The percentage of people under age 35 who hold credit card debt has fallen to its lowest level since 1989, about 37 percent, according to a New York Times analysis of Federal Reserve data last year.
That analysis did not break out the average number of cards people carry, but it may reflect tighter credit standards imposed after the financial crisis. Credit cards simply became less available to students, people just out of school or those starting jobs without a well-established credit history.
Then, too, the average person under 35 already has $17,200 of student debt, nearly double that of Americans of the same age in 1995, the New York Times found.
Across the board, millennials carry outlooks on money that often set them apart — starting with how they use the most basic consumer tool, the credit card.
Millennials arrive during a golden age for credit card rewards, from airline miles to cash back, but it’s a landscape loaded with potential pitfalls. Card issuers find it worthwhile to get into an arms race on perks because they make the money back — and then some — on a subset of customers. These are the ones who slide into the quicksand of big interest and fees by failing to pay off balances each month.
And along the way, customers often lose track of the places and times when each card’s rewards are most valuable. Competing companies even taunt rivals in advertising about how hard it can be to keep up.
Enter a company like Birch.
One of Birch’s founders, Cohen grew up in Wellington, attended the University of Florida and graduated with a degree in finance and information systems in 2015.
The company based in Gainesville has received about $150,000 in start-up funding from sources including angel investors, he said. It is working on a mobile app after developing a web-based tool, he said.
The company aims to carve out its own unique niche, though Cohen acknowledges thousands of companies want to reach this generation when it comes to personal finance.
Just as online tools routinely help people find the lowest air fare or best restaurant reviews or the closest available ride-share driver, Birch sets its sights on maxing out credit card rewards, among other capabilities.
That might mean putting a gas purchase on a card giving extra rewards at the station this quarter, while steering that clothing haul to a card with the best terms for that store.
Earning and retaining the trust of its users remains important, because Birch asks them to link their accounts.
Reviews online cite its potential as a useful tool.
“Some people are able to keep it all straight in their heads, but for those of you that need a little bit of extra help, there’s now have a great solution at your hands,” a reviewer on frugaltravelguy.com wrote last year.
A commenter found it “a cool new tool” while noting a few hitches in the early stages with linking certain card accounts.
Cohen said the firm has been smoothing out wrinkles in the intervening months and is ready for the next stage in its quest to ride the wave of millennials.
“I think we’ve grown up with the mentality of trying to get the best deal,” he said.
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