Banking on Baby Boomers
By Malcolm McDowell Woods
The rust belt is graying, as the swell of baby boomers reach retirement age, and Wisconsin is ahead of the trend. The state is among several states experiencing a larger than average increase in the percentage of its population hitting 65 and older.
That aging workforce has serious implications across all industries, but Wisconsin-based banks and other businesses in the financial services industry face an additional — and perilous — challenge: an aging and dwindling customer base fueling an unprecedented transfer of wealth.
Jim Perry is a senior strategist at Market Insights, a Seattle-based consulting firm. He has been traveling the country the past year and a half delivering a presentation entitled Demographic Disruption. “I think it’s necessary to keep raising this issue, especially to financial institutions,” he says. In his presentation, Perry shows a map of the United States that is broken down to the county level and illustrates the expected change in each county of the population aged 65 and older between now and 2028. “About 15 percent of the counties in Wisconsin are going to have greater than 30 percent of their population in that age group, and about 40 percent of the counties that will have more than a quarter of their population in that age group.”
Perry’s predictions continue a trend. The country is aging. The percentage of the American population aged 65 and older went from 12.4% in 2000, to 13% in 2010, and to 16.8% in 2020. But Wisconsin is aging faster. In 2020, 17.7% of the state’s population was 65 or older. In fact, from 2010 to 2020, according to U.S. Census Bureau figures, Wisconsin saw an increase of 41.7% in the share of its population aged from 65-84 and a 7% jump in the Wisconsin population 85 and older between 2010 and 2020.
“You’re seeing a pretty dramatic shift (in Wisconsin), especially given that Wisconsin’s population hasn’t been growing as rapidly as the rest of the country.” The demographic shift is even greater among some of the state’s most rural counties. In some counties in the far northern part of the state, close to 30% of the population is between the ages of 65 and 84, with a growing proportion aged 85 and older. Aging baby boomers are just one part of the story. Younger residents departing for greater opportunities in urban areas and the continuing migration of people away from the rust belt and northeastern states to states in the south and west compound the issue.
The trends present several challenges particular to financial institutions. “As those counties shrink and age, it makes it especially difficult for the financial institutions that are trying to serve those communities,” notes Perry. “Most bankers can tell you the average age of their customer base, because that’s long been a standard way to measure their ability to meet the needs of their customer base, but they can’t always tell you the number of actual customer households that fall into the 65 or older bucket.” When his firm examined account holders for some Wisconsin banks, it found cases in which anywhere from 30 to 50 percent of the account holders were in the 75 and older age group.
“And we all know what that means,” he adds. “We know how that story ends: this great transfer of wealth that is going to be happening in the United States in the next 20 years.” And, due in large part to those demographic shifts, it often means that wealth is going to be leaving the state. That’s because the children of those aging account holders have either left the state or moved to larger, urban areas. For affected banks, the loss of customers is one thing, but the loss of that income stream will bring a second impact. As homes are sold and retirement savings spent, older customers transition from asset accumulation to asset spend down, causing a further erosion in the deposit base for financial institutions.
The bad news, from the perspective of Dennis Winters, chief economist and director of the Bureau of Workforce Information for the Wisconsin Department of Workforce Development, is that this demographic shift is neither new nor easily remedied. “We’ve known about this trend for quite a while,” he notes. “We knew when, why, and how it was going to happen.” The swollen Baby Boomer generation affected the country’s economic structure when it arrived, spurring housing starts and new school buildings and engorging the workforce, and it’s causing an equally disruptive effect as it ages out of the workforce.
The impact of a diminishing workforce was highlighted by the COVID pandemic. “That was a crystalizing event,” says Winters. “Suddenly, we couldn’t find enough help. There just weren’t enough people (to take jobs) and there still aren’t. You see it in health care, you see it in education, restaurants, everywhere.” And it’s not just Wisconsin. The overall workforce across the nation is shrinking.
“You know, the main focus on labor, whether it’s in education, business, or government, is trying to attract and retain workers,” notes Winters. But neither the situation nor the usual solutions are unique to Wisconsin. He points to neighboring states Michigan and Minnesota. “They’re not going to let us attract all their people, right? So, they’re going to try the same things.” The shrinking labor force is an example of a macroeconomic problem, he explains, while the typical solutions are microeconomic. “You can do all the things that you want to try to attract someone to your firm. You can raise wages, you can give more benefits, offer flexibility, child care and so on, all those kinds of things. And that’ll get the person to your firm. Well, now I have to go out and find somebody, right? So, I do the same thing and attract them from somebody else’s firm, and around and around it goes.”
Unfortunately, beyond hoping for a population explosion — and even that wouldn’t have much of an impact for a couple of decades — leaders of the state’s financial institutions are going to have to brainstorm microeconomic solutions. Perry says there are numerous ways banks can work to survive the changing demographics.
Foremost is relationship building, with the children and grandchildren of those account holders, and even with their spouses. Citing the fact that wives often outlive their husband, he notes that at many older, traditional banks, the people in charge are older men, who have mostly dealt with their male clients. Relationship building is critical now to help ensure that some of those assets remain in your communities.
Providing education and services to the generation about to inherit that wealth transfer is critical as well. “It really kind of pushes some financial institutions to be more aggressive in terms of financial education and wellness. A lot of folks have come to that rather passively, perhaps offering some advice or some articles or something like that on their website, but it’s really going to involve them making more of a human connection.” He cited an example of a client bank in Michigan that had a long volunteer relationship with the local Habitat for Humanity, organization, helping construct housing. Bank leadership realized they could perform another vital role — providing financial education and coaching to the housing recipients. “It takes finding new ways to leverage your community connections, to make yourself that trusted resource for information,” says Perry. “It’s requiring banks to get out from behind the desk and to do more to engage the folks that they hope to reach most directly.”
Community banks, says Perry, need to do a better job recruiting young customers, who are currently opting for national banks and financial technology firms (fintechs) such as Chime. The fintechs, he explains, examined pain points customers had with traditional banking and developed innovative ways to answer customer needs. “I think right now, community banks only have about a six percent share of those new accounts … we have to do better on that front.”
Education is critical here as well, and Perry adds that banks may need to be more imaginative in how they deliver that material. In-person seminars and lunch and learns may not cut it. “If you’re not out on social media, or if you’re not delivering it in bite-sized segments,” he notes, “you’re not going to be giving these younger adults the information they need in the way that they need it.”
In addition to developing strategies to attract and retain younger customers, banks may need to look to other markets to replace those assets. How are banks going to replace those customers, Perry asks? “That really requires a long-game strategy of making sure first of all that they have the digital tools they need and the functionality to attract younger customers over time, but it also invites them to expand their business models.” That may mean working to expand their commercial base or even stretching beyond their geographic boundaries by developing digital tools that can be accessed and utilized from anywhere.
Remote banking leads to another strategy that may help stem banks manage the more direct challenge of an aging workforce, that of replacing retiring workers. Banks are going to have to wrestle with the concept of remote work, Perry states, especially given some of the specialized skill sets that are needed to deal with the digital transformation underway within the industry. He cited a Pacific Northwest bank that employs a third of its staff remotely. They did what they had to do to recruit the talent needed to remain competitive, he says.
Of course, bank leadership may elect for a more drastic solution, Perry adds. “Because this all can seem a little daunting, especially with everything else that banks are having to deal with — cyber security issues, the rate environment, all of that — the industry overall is anticipating that some institutions are going to say, ‘All right, maybe it’s time to look for a merger opportunity, maybe it’s time to sell.’ You’ve got some bank boards that have been doing this for a very long time and have gone through the Great Recession and they went through COVID and all rest and they’re thinking, ‘Do I have the strength to continue growing our institution and doing everything that it’s going to take to actually do that?’ There is a lot of anticipation in the industry that that we’re going to begin seeing a significant wave of consolidation over the next decade.”
A drastic solution, perhaps, but, as Winters with the Department of Workforce Development maintains, this really isn’t a problem that will be solved with microeconomic solutions.
“That’s the thrust of my argument: micro solutions won’t work on the macro problem,” he concludes. But be first or be best with those micro solutions, and you may buy yourself valuable time. “You’ll have some advantages, right?” He notes. “And the clever ones will stay out in front as long as they can.”
McDowell Woods is a freelance writer and an instructor of journalism and media studies at the University of Wisconsin–Milwaukee.
