How banks can better meet the needs of multigenerational households

A version of this article first appeared in the September Executive Report: Better banking for all through financial wellness. Additional articles in the issue explore how education and tools help secure solid financial footing for customers and members while creating competitive advantages through distinct products and services.

Families that have multiple generations under one roof often have complex finances.

Banks and credit unions can smartly identify all-ages financial and familial relationships, noting the sensitivity these ties add to customer engagement. For instance, do all family members share the same access rights to an account? Have official steps been taken to ensure safe handling?

And there are growth opportunities. Can a single personal account expand to meet educational savings goals or small-business banking needs when a family is also the proprietors of a commercial interest in the community? Are young family members learning good habits from parents and grandparents? There is no shortage of questions and connections to consider.

Indeed, one in four American adults (67 million) live in households with three or more generations at any one time, according to recent research from nonprofit Financial Health Network (FHN). It’s an organization that is partnering with financial services providers on initiatives intended to benefit the long-run health of consumers and support sustainable and competitive market practices.

According to FHN figures, 44 million adults are unpaid caregivers, and nearly half of those are supporting a parent. Finances in such households are often intermingled. It’s a higher stakes scenario for most than simply borrowing 20, 50, 100 dollars here and there from a loved one; it adds up over time.

“Our lives are intergenerational, and we can’t separate our financial lives from our broader experiences,” says Lisa Berdie, director of research at FHN. Read more of FHN’s report.

Multigenerational households—including for this financial discussion, separate households that are caring for another—often share expenses or cover at least a portion of expenses, Berdie stresses. Families also take intergenerational needs into account when investing and borrowing money on a larger scale. Three-fourths of families with a child in college are using parent savings to help cover those costs, and 6% of all households have student loans for either a child or grandchild’s education. This creates trade-off decisions for retirement savings, funds that might be needed for healthcare across generations, major home maintenance, and any of life’s other big-ticket requirements.

The research shows generational implications can repeat. Financially secure parents are less likely to rely on support from their family as they age, but they are also better positioned to invest in their children’s educational pursuits, facilitate access to homeownership, and foster social networks that offer access to opportunity. Younger people who enter the workforce on financially sound footing can typically tap wealth-building opportunities.

Similarly, when young adults are in strong financial positions, they in turn care for family members young and old. Patterns emerge in the other direction as well. Cash-strapped parents may also feel pressure to help their children with student loans, a housing down payment, or childcare, even as they face their own financial struggles.

How can banks respond?

Last spring, FHN held a cross-disciplinary event with 30 professionals in the financial wellness field to discuss how institutions could impact intergenerational financial health. The main takeaway? The organization believes that financial institutions have a key role in helping families manage financial interdependence, Berdie says.

One example is how financial institutions are facilitating authorized users on accounts by helping families manage the transition either from dependence to independence or from independence to dependence.

“Financial institutions should make sure that families are aware of joint ownership and authorized usership. They can provide tools both to manage finances as well as build healthy credit records for family members, while noting risks,” she says. “For those who might be shifting back towards a more dependent state, there are opportunities to have these tools but with space for joint decision making.”

And when directing younger generations to build up a healthy relationship with money, credit, and banking, it’s important for older generations to model good behavior, especially when it comes to credit, adds Berdie. But because building strong credit ratings at a young age can be challenging, and scores are susceptible to a lack of credit history as much as poor history, building credit history together can be beneficial.

“Credit history is also intergenerational,” Berdie says. “We have research on and good evidence that families use authorized accounts to help children and young adults in their family build credit histories. This practice could also be particularly helpful for household members who are credit-invisible and so-called thin-file borrowers.”

Targeted products and intentional relationships

Multigenerational households are divided by demanding schedules that are likely pulling one generation toward school, extracurricular or job functions that help chart a course toward higher education, and in another direction, the exercise classes and medical appointments boosting quality of life for seniors. The generation in the middle is likely the earner and may be sourcing income in multiple ways. It all means that the more direct and transparent a financial institution can be about efficient banking products and services that deliver value, the better a strategy will resonate.

Financial services digital platform and data provider Amdocs commissioned a survey of 1,000 U.S. consumers to see if the composition of households determined the preferences of banking products and how they were marketed among the inhabitants.

“We were curious, for instance, if multigenerational households would be more or less interested in personalization than households without dependents?” says Bentzi Aviv, global head of fintech solutions at Amdocs, who wrote about the survey’s results in an article for BAI Banking Strategies.

Overall, he says, the results showed that most respondents living in multigenerational households are interested in more guidance when it comes to banking products and the financial resources necessary to plan a secure future.

Of multigenerational households surveyed, well under half, 38%, said they feel like they have the resources needed to plan their future. The households with seniors included were the least prepared financially for their future, they said, at 31%.

“This is an area where banks are missing an opportunity to fuel customer growth and retention, with 68% of respondents noting that they are interested in banking offerings that help them manage their multigenerational households, now or in the future,” Aviv says in his contributed article. “Transparency and insight” emerged as a critical pain point, with 55% of respondents saying they have no visibility into their elderly family members’ banking habits and accounts.

Respondents that tended to have a parent and are raising children younger than 21 under the same roof expressed interest in financial products with relevant rewards or incentives that would further their financial outcomes. They also desire more financial consultation and credit score-related tips.

“Whether a family has young children, adult children or elderly relatives living with them, families have many of the same or similar financial needs. Some are immediate and some are longer-term, but all take time to manage,” says Matt Gromada, managing director, head of youth, family and starter banking at the $4.6 trillion-asset JPMorgan Chase & Co.

Gromada says young families often benefit from his bank’s global view budget tracking worksheet once they crunch the recurring expense of childcare, typically one of the most significant shifts to financial planning at that stage of life. At about the same time, banks can help their customers build an emergency fund, which is crucial to handle unexpected expenses that can arise with a growing family, allowing them to better navigate unforeseen circumstances without incurring debt.

“When planning for the future, college is more and more expensive and out of reach for so very many families,” he says. “That is why it’s helpful for clients to sit down with their banker or advisor who can help them think about and plan for their options based on post-high school plans for their children. A 529 account might be the right solution to help put money aside for any kind of school expense — whether it’s for university, community college or vocational school.”

It’s never too early or too late to discuss fraud risks

Gromada says that digitally connected kids, and consumers in general if unwary, are increasingly the targets of fraud and scams, so it’s important that parents open an account for their children that has security protections in place. For instance, Chase offers two accounts that give parents oversight of their children’s spending and are designed to encourage children to learn by doing, with features that promote financial wellness. Chase First Banking is ideal for kids ages 6 to 13, and High School Checking is intended for accountholders 13 to 17.

“Each of the accounts offers parents an opportunity to provide guidance to their kids and aims to keep them safe,” he says. “Kids get a debit card and can learn how to budget and spend money or they can put money aside for savings goal.  And time-starved parents can monitor it all from their own Chase banking app.”

For families that have adult children living with them, Gromada recommends that banking leaders educate customers about “open and direct” conversations about which household expenses the adult children are responsible for and which the parents will cover. And have this discussion before the bills start to hit, he stresses. Parents can also help their adult children make sure they have an “adult-sized budget,” to help them assess what they need to spend money on versus what they want to spend money on.

“That can be incredibly helpful on the path to leaving the house and living independently,” he says. “If a young adult has student loans or other financial debt, parents can help them work through managing that debt load and build a plan together on how to tackle the debt.”

He said banks often have products geared specifically for customers trying to build healthy credit alongside smart budgeting. Chase has a product for customers and non-customers called Credit Journey that can help individuals monitor and manage their credit score.

And, he adds, banks and parents can help young adults navigate credit card products, especially for customers who are new to credit. For instance, Chase offers its Freedom Rise card for new-to-credit customers who might otherwise not be approved for a first credit card but would have a much higher likelihood of being approved if they are already a Chase banking customer with $250 or more in a checking or savings account.

Gromada, like FHN’s Berdie and Amdocs’ Aviv, knows that financial conversations across generations aren’t always easy. But higher living expenses as well as fraud and scam risks make these tough talks so important before situations turn more problematic.

“When time is right, is helpful to have the grandparents and the adult children openly discuss whatever senior generations feel comfortable with around their finances,” Gromada says. “If grandparents agree, an adult child can be added to their checking and saving accounts to help them stay on top of banking.”

Katie Kuehner-Hebert is a regular contributor to BAI.