A recent report released by Lenvi has highlighted significant trends and future predictions in the UK lending landscape, particularly as they pertain to Generation Z, who currently make up 15% of the UK population. This group is proving increasingly challenging for lenders to engage, prompting financial institutions to rethink their strategies in order to appeal to younger consumers who are likely to shape the future of borrowing.
The report indicates that one of the main strategies for this demographic is a reliance on parents for financial guidance. It found that 40% of young people tapped into what is colloquially known as the "bank of mum and dad," suggesting that family support remains a primary source of financial assistance. This trend is compounded by the fact that nearly a fifth (21%) of parents have taken out loans specifically to assist their children, particularly with regards to expenses like university tuition, cars, and mortgages. This presents a unique opportunity for lenders to explore family banking options that cater to both Generation Z and their families.
In terms of borrowing behaviours, the report reveals that 81% of Generation Z have engaged in some form of borrowing, which often includes essential expenditures, raising alarms regarding the high number of young people reliant on credit to meet their basic living costs. On average, this age group owes £1,400, with many reportedly borrowing to cover rising costs of bills, food, and rent. In fact, concerningly, 27% anticipate they will need to borrow more due to increasing bills, while 26% cite food costs as a potential reason for additional borrowing. Furthermore, practically two-thirds (66%) of respondents are considering borrowing for the festive periods of Christmas and Black Friday.
Financial anxiety among this cohort is also notable, with over half (52%) expressing worry over their existing debts. Two-fifths (40%) of those surveyed are concerned about the duration it will take to repay what they owe and approximately one-third (34%) feel that their financial commitments are hindering their overall lifestyle and financial freedom.
Another key aspect addressed in the report is how Generation Z perceives financial education. Despite the stereotype of this generation being overly reliant on social media, the findings show that 43% still turn to family for financial guidance, contrasting with a mere 10% who rely on influencers or podcasting platforms. Nevertheless, it is worth noting that TikTok has experienced a 373% increase in interest related to financial content, indicating a growing desire among young people to improve their financial literacy and money management skills.
Moreover, the report highlights the preferred methods of communication for Gen Z when interacting with lenders. Digital communication platforms, such as WhatsApp, are favoured by 16% of respondents over traditional in-person interactions, which were preferred by only 13%. Meanwhile, only 2% prefer contact via post. Given their inclination towards digitalisation, the report suggests that lenders could leverage AI technologies to engage and retain this younger audience. Specifically, while more than half of those surveyed expressed readiness for AI to manage their finances, they were less enthusiastic about AI's role in decision-making or determining loan rates.
Richard Carter, Chief Executive Officer at Lenvi, articulated the importance of understanding this shifting dynamic, stating, “Our research is evidence that the way people borrow and perceive borrowing is changing, and it’s crucial that lenders understand this to meet the diverse and complex needs of Gen Z.” He further emphasized the role social media plays in the financial decision-making process and noted the alarming reliance on borrowing for survival, calling for tailored financial solutions to support those facing economic hardships.
In summary, the report underscores the imperative for lenders to adapt their offerings to ensure they resonate with Generation Z’s unique financial circumstances and expectations. With the integration of technology and a sharp focus on family-oriented support systems, the lending industry has a significant opportunity to cultivate a positive relationship with this emerging generation of borrowers.
Source: Noah Wire Services