Alternative Finances

Oh The Places You’ll Go (PYMNTS Edition)

“You’re off to Great Places! Today is your day! Your mountain is waiting, So… get on your way!”
– Dr. Seuss

There are literally thousands of predictions and pieces of advice currently circulating on the Web for The Class of 2015 that will occupy the weekends of so many of us as we wish all of those fresh faced college graduates well. PYMNTS has not too much to offer in either category – though we do feel comfortable making at least one prediction for this year’s grads – over the next several weeks, many of them will hear the above quote at least once during a graduation speech.

Dr. Seuss’s “Oh The Places You’ll Go” is a perennial favorite amongst commencement speakers.

This year’s college grads represent the tail end of much written about, discussed and speculated upon group of people- Millennials, aka Generation Y or Echo Boomers. In fact, if the standard generational measures are correct, this year’s graduates – who were mostly born in 1993 – are the penultimate cohort of Echo Boomers.

When today’s graduates were born, Americans were just starting to sign in online using AOL, Prodigy and CompuServe. By the time they were a year old, Amazon had launched – meaning these were likely some of the first kids whose bedtimes stories were ordered online instead of bought at Barnes and Noble. By the time this year’s graduating class turned 10 (and started listening to music), iPods and iTunes were displacing CDs and in 2006, when they all turned 13, Facebook opened up to anyone 13 or older with a valid email address.

In short, while Millennials, in general, are held to be “Generation Tech” this year’s graduating class embodies the beginning of true tech natives – many of the most recognizable features of today’s digital landscape switched on at roughly the same pace today’s graduates did. And we think such a unique group of people deserves just a little more unique focus.

Which is why we would like to offer a snapshot of who the graduating class is today as consumers who are about to enter the market as full fledged, wage earning adults. Wrapped around, of course, a few choice passages from Dr. Seuss.
 
Commerce
“You have brains in your head.You have feet in your shoes. You can steer yourself any direction you choose.”

The goods news for online retailers facing the next graduating class is they rather love shopping online. This is in line with the general trend for the cohort – though current graduates are somewhat different than their “Millennial Moms (and dads) counterparts – who are also heavy eCommerce users.

However, research from Accenture seems to demonstrate that there’s something of a parting of the ways between the older and younger segments of 80 million or so member generation commonly grouped under Generation Y. The older group –  the Millennial parents – are still fairly likely to shop at a brick-and-mortar retailer – albeit after having used the Web to extensively research their purchases.

“One challenge for retailers is the Millennials’ seemingly omniscient grasp of prices and promotions, which this generation expects to be the same in stores as they are online,” the report notes.

Younger Millennials – like those that will be graduating from high schools and colleges this and every weekend in May – on the other hand, are twice as likely to just skip the store experience in favor of just ordering directly online. Research out of the University of New Hampshire indicates that 88 percent of students surveyed searched online for discounting and price comparisons before making any large (over $200) purchases. The survey also found that younger Millennials were less likely to make a trip to a physical location than any other demographic group – and that they were less forgiving of real world experiences that didn’t integrate well with digital ones.

“When I get to the store, if I haven’t printed out my coupon and I can’t use it, I walk out,” one survey participant noted.

Debt
“I’m sorry to say so but, sadly, it’s true that Bang-ups and Hang-ups can happen to you.

The class of 2015 by some reports will be the most indebted in history. On average, this year’s grads will leave their various institutions of higher learning with a college degree and about $35,000 in debt – altogether the class owes $56 billion to various creditors.

On average, most college students will be paying back that debt for the next 10 years – though some plans are stretched out like mortgages over 30 years. Most experts, however, strongly advise against paying off a student loan over the next 30 years.

“Pick the plan that has the highest monthly payment that you can afford,” Edvisors SVP Mark Kantrowitz told The Boston Globe. “If you opt for any other repayment plan, you will be in debt for 20 or 30 years, and that will impact other life-cycle decisions like getting married or buying a house. Cable TV is a luxury, a cellphone is a luxury. A necessity is something without which you will die or go to jail.”

Perhaps unsurprisingly, most graduating college students are less than enthused to live a life without cable or a cellphone – meaning students are statistically in larger amounts of debt for longer – which is having an increasing impact on the rest of the economy.

According to reports in The New York Times – and many other places in the last year – students carrying increasing debt loads are buying homes later, carrying fewer (or no) credit cards, starting fewer businesses, taking out fewer loans and buying fewer houses. And because they are interacting with credit markets less, but will be carrying large debt balances due to student loans, this year’s graduating class is widely forecasted to be looking at depressed FICO scores that could make future interactions with credit markets more difficult – which is a bang up and a hang up indeed.

Financial Management
You’ll look up and down streets. Look ’em over with care. About some you will say, ‘I don’t choose to go there.’ With your head full of brains and your shoes full of feet,  you’re too smart to go down any not-so-good street.

While the Class of 2015 is facing some challenges – vis a vis their indebtedness – they also seem to be graduating to a marketplace that is getting a little more inclined to view them as a good risk.

“Younger consumers are doing a really good job at managing other types of credit,” says Charlie Wise, a vice president in TransUnion’s innovative solutions group. “This is a surprisingly credit active, credit hungry group that seems to perform well on those loans.”

Wise was commenting on a study of 6 million younger consumers with (and without) student debt – those who graduated in 2005, 2009 and 2012. The study found that while those with debt initially lagged with other credit forms out of the gate from college, within five years they had more or less caught up to their peers in every area but mortgage lending.

More encouraging, however, was the finding that those who graduated with debt were no worse at managing their money than those who didn’t – and in some cases (where the respondents had student loan, credit card and auto debt) were the least likely in their age group to have delinquent payments on their credit score.

This year’s graduating class is also entering a marketing with an ever increasing plethora of alternative financial service products – many of which are designed to meet some rather specific needs of new and emerging consumers, from thin credit file lending to income smoothing for those early in career facing income volatility.

Additionally, banks and merchants are changing how they market as they try to bring in a more robust cohort of the millennial generation with increased focus on mobile banking and personalized financial services.

So the Class of 2015 is off on their way – perhaps to change the face of banking and commerce as we know it, or maybe just looking to get out of debt. But, we, like Dr. Seuss are optimistic that it will be much more of the former than the latter in the long run.

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