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  • Jacob Bennett

What The Great Wealth Transfer Means for Financial Institutions

Millennials haven’t had it easy financially. They’ve experienced multiple recessions, a housing crisis, and one catastrophic global event after another during their adulthood. Overall, Millennials have a more challenging time reaching milestones than their parents and grandparents did. This means they have less savings than older generations and are more likely to live paycheck to paycheck.

But there is a chance they might end up financially secure after all, thanks to what’s known as “The Great Wealth Transfer.”


What Is the Great Wealth Transfer?

The great wealth transfer refers to the reallocation of wealth from Baby Boomers to younger generations, including Gen X, Millennials, and Gen Z. It is already underway and expected to continue over the next few decades. This seismic shift presents both significant opportunities and formidable challenges for financial institutions. In particular, Community Banks and Credit Unions need to plan for this wealth transfer to ensure they can keep up with deposits and build their customer and membership base as their core demographic passes their wealth on to younger generations.

Generational wealth transfer isn’t new – every younger generation has the potential to gain wealth with the passing of older generations. What’s different this time is the sheer volume of money that Baby Boomers will pass down. As The New York Times puts it, “A key reason there are such large soon-to-be-inherited sums is the uneven way boomers superbly benefited from price growth in the financial and housing markets.” Many Boomers benefitted from an overall thriving economy during their early adulthood and beyond. This has allowed them to amass unprecedented wealth, often in the form of assets such as houses, land, and businesses.

Traditionally, wealth transfer happens upon the death of the older generation. Yet, some Baby Boomers are already passing on their wealth to their children and grandchildren, ensuring their descendants can enjoy the money now rather than wait until they receive it as a formal inheritance. Known as “giving while living,” this practice has the potential to be a game-changer for some Millennials (who could use a lifeline) and the economy overall.

Wealth Transfer Planning for Credit Unions and Community Banks

The magnitude of this wealth transfer is hard to overstate. Baby Boomers, who have been a dominant economic force for decades, are starting to pass down their accumulated assets, estimated at $78.3 trillion and representing half of all wealth in the United States. This shift is not just a transfer of assets but one of economic power and influence.

So, what does the great wealth transfer mean for Community Banks and Credit Unions? For one thing, it means losing significant deposits as wealth flows away from their existing base. Rather than happening all at once, this wealth transfer will likely spread out over a few decades, thanks in part to Baby Boomers living longer than previous generations. Some will go to Gen X, but the majority will land in the hands of Millennials, who are not typically the core demographic for Credit Unions and Community Banks. 

According to recent research from the World Council of Credit Unions, the average age of a Credit Union member is 53, which is the age of someone in Gen X. However, only 4% of Gen Z and 14% of Millennials are Credit Union members. By the same token, only 18% of Millennials are Community Bank customers. This highlights a significant gap for these financial institutions to fill before the great wealth transfer is complete. Those who act early to attract these beneficiaries stand to gain the most in the short and long term.

How FIs Can Use Targeted Data to Connect with Younger Generations

One way to fill this gap is by targeting younger business owners who can turn to Community Banks and Credit Unions for business and personal purposes. Millennials and Gen Z are starting small businesses at a record pace, with 71% expressing some interest in exploring entrepreneurship. A wave of recent layoffs, a desire for autonomy and flexibility, and overall economic uncertainty are leading younger professionals to consider starting a small business rather than working for a large corporation.

Although commonly referred to as “fickle,” due in part to their willingness to abandon a business the second it becomes inconvenient, these younger generations are undeniably tech-savvy and expect a personal touch. At a minimum, Credit Unions and Community Banks must embrace digital experiences that simplify banking and make it easy to become a member or customer. These experiences must be seamless, not clunky, and provide a noticeable time savings. At the same time, Millennials and Gen Z are seeking personal connections with businesses and want to build relationships with people who can help them reach their personal and professional goals. The most forward-thinking financial institutions will embrace technologies that allow them to engage this new demographic on their terms to build trust and loyalty.

Community Banks and Credit Unions need a strategy for bringing in depositors of younger generations who will benefit from the great wealth transfer. The rise in younger generations' entrepreneurial spirit and desire to build more meaningful personal relationships presents interesting opportunities for Credit Unions seeking to grow their memberships and Community Banks looking for new long-term customers. Recognizing their concerns about financial security is key, as Millennials and Gen Z today are less likely to have personal or retirement savings than older generations. In addition, gaining access to specific insights about their small businesses can help Credit Unions and Community Banks flip the script to proactively drive long-term relationships with an economic segment that brings more deposits, and greater profitability than any other.

Targeted data that speaks to the unique challenges of individual small businesses is invaluable for opening dialogues and starting conversations that deliver real value to these entrepreneurs. Crux Analytics can help you obtain targeted, actionable insights that will build trust and loyalty so you can grow your memberships and customer base while increasing low-cost deposits to drive greater profitability. Get in touch with us to learn more.



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