Millennials prefer the ease and convenience of Alternative Financial Solutions (AFS) for their financial management strategy.
Alternative financial solutions (AFS) are means to an end for those trying to make ends meet. These payday loans and check-cashing outlets are high-cost, low-value products and services that are a last resort for most. In the long run, these choices sink them deeper into debt, making it difficult to break the cycle.
Alternative financial solutions are skyrocketing in popularity. Although the combined group may be diverse, millennials make up a sizable portion of users. The reasons behind their growing use may be helping to change the way the financial industry is viewing these products.
What Is an AFS?
An AFS is any provider of financial services that operates outside of traditional financial services providers, such as banks. These include check-cashing stores, money transfer services and car title lenders. It’s also payday loan stores, pawnshops, quick loan companies, and rent-to-own stores. They offer services such as check cashing, remote check deposit, money orders, person-to-person payments, and general purpose reloadable (GPR) prepaid cards.1
More than any sector of the AFS user group, millennials are most satisfied with their AFS experience. They consider these tools to be a valuable part of their current financial management strategy.
What’s the Attraction?
Among millennials, the popularity of AFS does not discriminate between lower- and higher-income classes. Some may use these products or providers primarily to make ends meet. Still others use them because they’re quicker, more convenient and provide instant gratification.
This is a generation that grew up never having to wait. With tax-refund advances available today, there’s no reason to wait for it to be mailed in a few weeks. Why wait for the bank’s decision to approve a loan when an online application can be approved instantly?
There are more reasons why millennials are the highest users of alternative financial solutions:
- Poor credit scores
- Limited or no savings
- Lack of financial literacy
Regardless of income level, these are issues that plague the millennial generation. Many struggle with high levels of student loan debt, have trouble establishing credit, and lack access to traditional bank products. Alternative financial solutions are a way to help them successfully navigate their financial obligations and bridge the gap when needed.
A Combination that Works
The millennial-led movement toward AFS use is by no means a rejection of the traditional banking system. It’s more of an effort to bring them together for additional options. It allows them to choose from a broader spectrum of financial services when and where they need them.
Many respondents to the 2014 Consumer Payments Monitor survey2 have checking accounts, credit cards, debit cards and own smartphones. So why turn to AFS? Diversity and convenience are the major influencers “The bank doesn’t offer all that I need” and “the bank isn’t near my home or office,” were commonly noted. Others referred to speed and costs saying banks take too long and charge fees that are too high.
The Millennial Effect
One thing is certain – millennials are not afraid to try new things or challenge the status quo. Given the size of their generation, this is an influential market segment. The “millennial effect” could be significant as the financial industry works to fine-tune their offerings. Change is good, especially when it accommodates everyone’s needs and delivers more options.
For now, whether you deposit your check online or prefer to head to the bank, the choice is yours. Just don’t expect to chat it up with any millennials waiting in line with you.
1 Source: PaymentsLeader.com
2 Susan Herbst-Murphy and Greg Weed. “Millennials with Money Revisited: Updates from the 2014 Consumer Payments Monitor. FRB of Philadelphia Payment Cards Center Discussion Paper N. 15-6. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2709313