Millennials Are Here, But Who’s Coming Next?

We’ve written a few articles about the importance of Millennials (consumers born 1980 to 1994), and they remain the most important generation for Hong Kong lenders today — holding 26% of total unsecured credit balances and growing them by 15% year-over-year.

Now, Millennials are approaching or even well into their thirties. They’ve already arrived as a market presence and, for the most part, are pretty well understood by lenders. So it’s a good time to consider the next wave — Generation Z. This is the name we give to consumers born in 1995 or later; those youngest borrowers who today hold just 2% of unsecured credit accounts and 1% of unsecured credit balances, but are growing very fast and may even be growing very different.

At the end of Q1 2014, there were only 11,600 credit cards held by Generation Z consumers. This isn’t surprising — they would only have been 18 or 19 years old then, but by the next year, they held three times as many cards, and as of today, nearly thirty times as many. In the same four-year period, Generation Z card balances grew nearly fifty-fold, from under $20 million to almost 1 billion.

Generation Z card balances, in HK$ millions

Personal loans saw even faster growth, with Generation Z account numbers moving from just a couple hundred in Q1 2014 to 10,000 today. Personal loan balances moved from 5 million to 5 hundred million — while Millennial balances doubled, Generation X balances rose by two-thirds, and Baby Boomer balances actually shrunk.

The rate at which Generation Z balances are growing is exciting, but what’s interesting is the location of those growing balances.

In another previous article, I wrote about how Hong Kong banks and money lenders operate at opposite ends of the risk spectrum, overlapping in the near prime tier. For this reason, it’s important to look at personal loan balances on a risk-tiered basis. But even when we do this, we can see that as we move younger from Baby Boomers to Generation X to Millennials, the share of balances held by money lenders falls in each risk tier, until we hit Generation Z.

Money lenders share of prime-and-worse personal loans, by generation

Graph showing money lender share of prime and worse personal loans

Now of course this may be due to higher qualification hurdles at banks. Though the risk of the younger consumers is similar based on our CreditVision® Score, it’s probable that younger consumers earn lower salaries for example. And since it’s 15 years since Millennials were a similar age, I don’t have the data to validate this. But it’s not impossible that the emergence of FinTechs within the money lender category is playing a role. Or could play in keeping young customers away from the big banks as they age.

For more insights into the Hong Kong consumer credit market, read TransUnion’s latest quarterly Industry Insights Report and other articles here.

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