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Financial institutions

Filling in the financial picture on Gen Z consumers: Data tool helps lenders assess risk

The youngest U.S. generation has come of age in turbulent economic times, events that may be shaping their financial habits today. Adults in their early 20s, the oldest of Generation Z, experienced the benefits of a nearly decade-long expansion of the economy. But like their predecessors, the millennials, they also felt the impact of the Great Recession and may have seen their parents suffer under the weight of debt.

This rocky start into adulthood undoubtedly contributed to many younger adults’ desire to opt out of debt. In fact, about 23% of millennials don’t carry a credit card, and more than one in five of Generation Z adults believe debt should be avoided altogether. These “no credit” adults have been hard for lenders to connect with and perhaps even harder to assess for credit risk.

Despite their attitude on debt, Generation Z consumers are active users of both money apps and bank accounts. According to a Business Insider 2018 report, more than 75% used digital payment apps, and more than half had digital wallets. About two-thirds of Generation Z teens and young adults held bank accounts, either individually or jointly with their parents (American Banker). And they are not averse to using credit cards. As a new study from TransUnion finds, a surprising 66% of Gen Z consumers have active credit accounts.

How will Gen Z handle debt in the future?

The jury is still out on how successfully this generation will handle debt given the economic challenges posed by the pandemic. A January 2021 survey conducted by The Ascent found that 43.88% of Gen Zers had maxed out on at least one credit card, and 39.80% needed to use balance transfer offers. The long-range impact of the recent economic downturn on this generation remains unclear, with the younger generation, as reported by Pew Research, both losing jobs and locating better-paying ones at higher rates than other age groups during this period.

What does this mean for financial institutions?

What is clear is that this generation is already a sizable segment of the U.S. consumer market. As they enter the workforce, they will take on new responsibilities and likely seek to use additional financial products. They represent an opportunity for the financial institutions that can engage with them effectively.

Locating accurate, credit-relevant information on these young adults, however, can be difficult. Many have not yet established credit or have been slow to take on loans. Resources for verifying identity and conducting proper due diligence for financial transactions may not provide enough coverage on these younger clients, and data found through open-source research often isn’t reliable.

Thomson Reuters CLEAR, the comprehensive data analytics solution enabling identity confirmation and risk assessment, aims to fill this gap in consumer data. The solution now includes an additional 550 million records going back 50 years. Pulled from financial and lending institution nonfinancial data, the new Bank Account Header Records provides up-to-date contact and driver license information. Included in the enhancement are name, address, birth dates, and social security numbers, as well as driver license information from across the 50 states, D.C., and Puerto Rico.

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