| Feature Story |
Questions about the "inheritance boom"
It's called the greying of America, but to banks it's a virtual gold mine. This year the oldest of the baby boomers, who as a whole represent a hefty 32% of the U.S. population, will celebrate their 50th birthday. With the threat of corporate downsizings, children who will likely attend college, the burgeoning cost of health care, and a desire to build for a comfortable retirement, money is very much on their minds.
There's a lot of talk about how much the boomers will inherit. In 1993 two economists at Cornell University, Dr. Robert B. Avery and Dr. Michael S. Rendall, published a study in which they predicted that the baby boomers were to inherit a windfall of $10.4 trillion. The media took the researchers' theory regarding this massive transfer of wealth and transformed it into the stuff of legends. Although some experts agree the wealth will change hands over the years, they question the astronomic figures reported.
Dr. Neal E. Cutler, director of the Boettner Center of Financial Gerontology at the University of Pennsylvania, and Dr. Steven J. Devlin, assistant director, report that: "The media correctly reported the basic conclusion of Avery and Rendall's research. The total potential bequests which boomers might receive from their parents would exceed $10.4 trillion. Such sizable bequests reflect the basic fact that [more than half] of all wealth in the United States is held by people over the age of 55--37% of the population. Unfortunately, the headlines obscured the three most important details which serve to limit the financial impact of the findings about the "inheritance boom."
Cutler and Devlin continue with three facts that put a dent in the boomers' inheritance:
Dr. George P. Moschis of Georgia State University's Center for Mature Consumer Studies adds another point: "We know the funds from parents will be spread thin among a lot of children. Another factor is people are living longer and have increasing health-care costs."
Baby boomers, according to Primelife, are behind their parents in accumulated wealth and will reach retirement with a net wealth less than half that of their parents at a similar age, $43,000 to $293,000 respectively.
Banks are getting ready
Boomers may not be as tantalizing a market as previously thought, but by focusing on the mature market, banks are realizing they can target the most affluent portion of the U.S. population and, at the same time, prepare for the wave of baby boomers who will be moving through the 50-plus age brackets.
The money is in the pockets of the generation ahead of the boomers, who in many cases are their parents. The U.S. Census Bureau notes that while people 50 and over represent 14% of the U.S. population, compared with the 32% who are baby boomers, those older adults have the highest average household income. Together the members of this mature market and the baby boomers represent a very large and very viable customer segment for banks.
Banks tend to focus on the older group since they are close to or in retirement, while the boomers, who are pegged at mid-thirties to 50 years of age, are a more disparate group with ambiguous needs. Despite the fact that mature citizens represent a smaller portion of the market, they are by far the ones with the most wealth. According to Primelife, an Orange, Calif.-based consulting firm, mature Americans possess 77% of all financial assets (see Mature Market Facts).
"The term "baby boomers" makes a nice soundbite," says Stephen Heine, senior vice-president of the mature market group at KeyCorp, Cleveland, Ohio. "We are cognizant of them as a market, but they are not a defined segment."
KeyCorp's special formula
In the spring of 1995 KeyCorp created a mature marketing group to analyze the bank's 1.4 million households that were 50 plus.
"The first thing we discovered," says KeyCorp's Stephen Heine, "is that our customers are looking at us to be more than just a bank in the traditional sense. They are looking at us to provide solutions to financial issues in their life. They want us to have acumen about mature market issues like retirement and health-care planning. Customers are clearly asking us to be more than a bank and as a result they will keep relationships with us and expand the relationships."
The group initiated a mature market advisory board comprising 12 individuals between the ages of 50 and 75. The board members serve a two-year term and meet quarterly to discuss and evaluate the new products and services that KeyCorp has in the works for its 50-plus market.
The bank's mature market group completed its second survey of 2,000 mature customers and, in partnership with Time Inc., issues a quarterly magazine targeting the 50-plus generation. The magazine, which covers everything from the privatization of Social Security to the lowdown on health insurance, is available at branches.
The bank recently implemented a training program for certain employees called "Financial Solutions for Life." Select bank employees participate in a six month program that covers topics such as tax, insurance, investment, and estate planning. At the end of the six month period, the employees take an exam offered through the College of Financial Planning. The first group to undergo the training consisted of 65 employees, and KeyCorp expects to have 250 people certified at the end of 1997. Those bankers who work in areas with a high concentration of mature market clients will also take part in a program called "Understanding the Mature Client." The training is in conjunction with KeyCorp's strategy to offer complete financial planning that meets customers' needs.
"Our investment executives' entire interaction with clients is structured around a financial planning approach," says Heine. "The principle is different than just hawking a product. We know customers have needs, and we are looking to provide financial solutions."
Mature market banking facts:
Source: Primelife, Orange, Calif.
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