Struggling to recover debt from your Gen Y customers? If you understand their spending attitudes, you can work on planning to help motivate them to pay.
They’re one of the most educated generations in history. They have such a firm grasp on technology it’s hard to keep pace with a rapid-fire attention span that allows them to become masters of the multi-task. But one area the Millennial Generation needs work is paying their debts. This smart, lively bunch isn’t averse to maxing out their financial resources. Figuring out how to motivate them to pay you back can be a challenge.
The expensive business of education
First, let’s look at some of the reasons why this generation, more than any other, has such a comfortable relationship with debt. It’s not that they’re irresponsible or lazy. In fact, many Gen Y start their relationship with debt when going to university. According to an article in The Australian newspaper, “The average HECS debt is $15,200 and is repaid over 8.3 years.” For a young person, that can seem like an insurmountable length of time.
Blame it on the banks
Another reason young Australians find themselves in debt is due to relaxed lending policies. It’s not uncommon for people with little or no credit history to receive charge cards and they usually have no problem extending credit limits. This leads to an accumulation of bad debt. Because of their inexperience in managing finances, it often doesn’t occur to Gen Y to comparison shop for financial products and services. In other words, they’re prime candidates for incurring the most expensive debt available.
Global Financial Crisis
The Global Financial Crisis (GFC) changed the way many people around the world view debt. Baby Boomers were raised to believe accruing personal debt was a massive failure and a sign of weak moral character. By contrast, the Millennial Generation spent their formative years watching whole industries dissolve due to unmanaged debt. Witnessing so many people mired in financial chaos through no fault of their own removed the debt stigma.
For the most part, people of Gen Y have been raised in prosperous times. They never experienced financial hardship while growing up or any obvious forms of budgeting previous generations took for granted. Frugality is a foreign concept as is saving money in order to make a purchase. Combine the habit of instant gratification with a ‘you only live once’ (YOLO) attitude, and you have a recipe for debt.
Generation Y tends to have volatile work histories and inconsistent income streams. Part of this is due to fluctuations in the economy post-GFC and part of it is personality driven. Because a large percentage of young people live with their parents or return to the family home during their 20s and 30s, they haven’t had to demonstrate the same financial discipline as in generations past.
Now that we’ve discussed some of the reasons why young people are more susceptible to debt than ever before, how can you ensure your debt collection activities are successful?
Smartphones are your friend
Generation Y are incredibly comfortable with technology. Debt collectors have more opportunity to reach out to them through technology including mobile phone calls, SMS text messages, email and video conferencing. Because young people are almost phobic about being separated from their smartphones, it’s quite easy to get them through their mobile.
Focus on the cash
People in Generation Y tend to be cash rich. Because they often live with their parents or in shared housing, a good portion of their income is disposable. Knowing when their pay packet comes in improves your chances of collecting on your debt. Putting a payment schedule in place that correlates to their pay cycle helps ensure your debt is paid before the cash runs out.
Because Gen Y lacks financial literacy, you may have to educate them about the importance of paying debts. It’s a thoughtful generation so chances are they haven’t even considered why they should pay you. Let them know.
Use social media in your skip tracing activities. Gen Y have huge digital footprints and use technology as part of their normal social activities. It’s easy to do internet searches using free tools like Google to find all sorts of information about a debtor.
Young people are incredibly comfortable wracking up debt but it’s not impossible to collect from them. Understanding their attitudes towards money provides many clues about how to motivate them to pay you what they owe. Don’t be surprised if all it takes is some standard education about credit and a workable plan.
Natalie Walker is managing director of Blitz Credit Management (www.blitzcredit.com.au), a technology-driven debt collection agency based in Australia. Her modern approach to debt collection and credit management services has been widely embraced by Australian businesses. She can be contacted at (08) 6140 2584.