The Wealth Gap: How Generational Shifts Are Reshaping the Financial Landscape

Highlights:

• Consumer wealth has grown significantly since The Great Recession, but this growth is concentrated among already wealthy households and older generations (Boomers and The Silent Generation), who hold over half of all consumer wealth.
• Financial services marketers have immediate opportunities to target pre-Retired Baby Boomers and retired consumers for both deposit growth and wealth management due to their substantial assets.

Earlier this year, we discussed the wealth boom - the incredible increase in consumer assets that has occurred in the last 15 years since The Great Recession. As noted in that discussion, consumer wealth increased by approximately 247% during that time, with deposit and investment growth surpassing $47 trillion. However, looking more closely at that growth, we found that not everyone benefited from this boom, but instead, most of the gains were in households who were already wealthy and could afford to invest a significant portion of their assets in the stock market, which fueled most of the wealth gains. Segmenting U.S. households in terms of their overall wealth, most of these consumers belong to the Affluent wealth segment, meaning they have at least $1 million in assets.

Using a Generational Lens to Find Opportunity

With a different segmentation approach, we can also better understand where wealth is concentrated across life stages to identify where attractive market opportunities exist. In fact, looking at wealth through the lens of generation-based segmentation exposes similar wealth imbalances.

As Albert Einstein (may have) famously stated, "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." So, even intuitively, you might have guessed that older generations are more likely to be wealthy, if only because they have had the benefit of compounding interest over time.

As you can see, Boomers and The Silent Generation (appearing above as Pre-retirement Baby Boomers and Retired) together hold the majority of assets, $36.8T or 55.8% of all consumer wealth. Yet, they account for only 44.3% of U.S. households, less than half of all households.1 These consumers have had the good fortune of not only benefitting from compounding interest, but also the stock market's historical performance. Indeed, some say the past 50 or so years have seen the largest increase in wealth in human history. But what does this mean for financial services marketers?

The Opportunity Today

One obvious answer is that marketers need to ensure they are appropriately targeting pre-Retired Baby Boomers and retired consumers. If we break out where these consumer cohorts are holding their wealth, we see that opportunity exists both in banking and wealth management.

Looking at opportunities for deposits, banks and credit unions can target their costlier high-yield promotions to these consumers with the confidence that they not only find these products attractive but can transfer attractive levels of deposits into new accounts. Marketers can help maximize their acquisition costs by tailoring high-yield promotional campaigns to address the needs of these older consumers.

What is the key takeaway for wealth management marketers? Not surprisingly, most of this cohort's assets are held in mutual funds and stocks. But with $27.4 trillion in investments, there are a considerable number of affluent households that can be targeted with premium services associated with large sized accounts.

The Opportunity for Tomorrow

Of course, growth opportunities aren't limited to these life stages. In fact, Millennials and Gen X are both attractive segments to grow your assets under management today. Combined, these consumers command more than $27.2 trillion, with $5.9 trillion in deposits and $21.4 trillion in investments. Both generations also present the opportunity to have a high customer lifetime value as they have the potential to be profitable customers for several decades.

As previously discussed, the Gen Z market can also drive revenue today and tomorrow if you can capture Young Emerging Affluent and Young Affluent households as customers. These subsegments are Gen Z households that have at least $100,000 in assets. But finding them is not a simple task simply because there are fewer of them. If he had the chance, Einstein might have said that Gen Z, being younger, needs time for compounding interest to do its magic.

So by segmenting consumers by life stage, marketers can craft compelling messages and offer products that resonate with consumers to serve two goals: drive revenue today by focusing on Pre-Retired Baby Boomers and Retired consumers and drive revenue in the future by focusing on Young Emerging Affluent and Young Affluent consumers. It starts with accurately identifying these consumers and then understanding how to best address their needs. By leveraging IXI Network assets and data-driven marketing practices, Equifax can address these challenges to help you achieve your growth goals.

Source:

IXI Wealth Trends Report (includes data in image)