WHITE PAPER Where are the credit-worthy millennials? · Millennials (individuals born between 1981...

Where are the credit-worthy millennials?Cutting through the hype to understand this growing segment

AUGUST 2016

WHITE PAPER

2Where are the credit-worthy millennials?

Table of contents

1. Introduction.................................................................................................................. 3

2. Millennials don’t live where you think they do .......................................................... 4

3. Millennials are in a worse financial position than previous generations ................. 6

4. Millennial home ownership rates suffer ..................................................................... 9

5. Alternative data expands the addressable population ............................................. 11

Where are the credit-worthy millennials?


IntroductionMillennials (individuals born between 1981 and 1997) have surpassed baby boomers as the largest living generation in the U.S. The Pew Research Center predicts their dominance will continue to grow for the next 20 years. Driven by an influx of young immigrants, their numbers will swell from roughly 75 million in 2015 to just over 81 million in 2036.1

These 19- to 35-year-olds are at a key point in their financial lives. They are establishing their careers, accumulating wealth and building relationships with businesses. Yet millions of millennials lack traditional credit data and as a result are effectively ignored by the financial sector. This inability to access credit directly affects their ability to buy homes and build wealth, altering their economic trajectory for the rest of their lives.

According to LexisNexis® Risk Solutions research, approximately 20% of millennials do not have a traditional credit score or report, making it difficult for businesses to confidently provide them with financial products and services. Yet a large segment of these young consumers are financially responsible and actually score as prime or near-prime using non-tradeline sources of credit risk data.

Lenders that take a closer look at this underserved segment have an opportunity to forge relationships that bring new borrowers into the financial system, generating significant growth for those borrowers and their financial institutions. In this paper, we leverage public and proprietary data to address three important questions about millennials:

1. Where do they live?

2. Are they financially healthy?

3. Do they own homes?

Projected Population by Generation (Millions)

Millennial

Gen X

Boomer

Silent

Note: Millennials refers to the population ages 18 to 34 as of 2015.Source: Pew Research Center tabulations of U.S. Census Bureau population projections released December 2014 and 2015 population estimates

20150

15

30

45

60

75

90

2020 2025 2030 2035 2040 2045 2050

1. http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/



Millennials don’t live where you think they doMillennials are not nearly as urban as has been reported. In fact, 25- to 34-year-olds are slightly less likely to live in cities than the same age cohort in 2000.2 This tracks with our research, which shows millennials tend to live in significantly smaller and more rural communities than the general population. Occupancy records show that the average size for the top 250 counties based on millennial residents per capita is just under 50,000 vs. an average U.S. county size of about 100,000. Only 20 of the top 250 millennial counties have populations above the U.S. average.

Our research also shows a preference for more rural communities and states, especially in the upper Midwest and Mountain regions. Residents between the ages of 25 and 35 make up more than one-quarter of the population in North Dakota, Alaska, and Utah, with Wyoming following close behind at 24%. On the other end of the spectrum, states with the lowest proportion of 25- to 35-year olds are primarily on the Eastern seaboard, including Florida, Maine, Vermont, Maryland, New Jersey, and South Carolina. The popular retirement destinations of Nevada and Arizona also are near the bottom of the list.

Average County Population (Millennials vs. All Other)

Source: LexisNexis® RiskViewTM data

0

20,000

40,000

60,000

80,000

100,000

120,000

All U.S. Counties

101,463

Top 250 Millennial Counties

49,186

2. http://fivethirtyeight.com/features/why-millennials-are-less-urban-than-you-think/



The states with the highest proportions of millennials also rank highly in terms of population change, indicating much of the growth in millennial populations can be attributed to recent migration patterns.

There is a strong relationship between employment and the movement of millennials across the country. As shown in the following chart, a lower adult unemployment rate corresponds to a greater increase in a state’s 25- to 35-year old population. The energy boom in the upper Midwest and Mountain regions (especially Wyoming, North Dakota and Montana) has drawn many young people in recent years.

25-35 Year Old Population Rates by State (2015)


27%

26%

24%

26%

22%

18% 21%

Concentration

27%

19%

21%

23%

18%

19%

24%

19%

21%

19%

18%

Shi� in 25-35 Year Old Population Rates by State (2006 vs. 2015)


46%

29%

24%

16%

15%

3%

-8% 1%

Concentration

46%

-7%

-6%

-4%

-1%

18%-7%

-8%

-7%

1%18%



These findings demonstrate that the growth of the Millennial population will be geographically uneven and concentrated in pockets of the country. Companies looking to expand with this demographic should align their strategies and resources to take advantage of opportunities in potentially untapped regions of the country.

Millennials are in a worse financial position than previous generationsIn addition to strong job prospects, low cost of living is another factor that is attractive to Millennials, who have been disproportionately impacted by recent economic conditions.

Millennials are significantly less likely to fully participate in the mainstream banking system. The FDIC estimates that more than 35% of 25- to 34-year-olds are unbanked

Unemployment Rate (2015) vs. Change in 25-35 Year Olds per capita (2006 vs. 2015)

Source: Bureau of Labor Statistics, Employment status of the civilian noninstitutional population, 2015 annual averages

0% 10%-10% 20% 30% 40% 50%

12%

6%

Change in 25-35 Year Old Population

16

-34

Un

em

plo

ym

en

t R

ate

Alaska

Wyoming

Nebraska

North Dakota

NewJersey

Unbanked and Underbanked Population by Age

Unbanked

Underbanked

Note: 2013 FDIC National Survey of Unbanked and Underbanked Households

0

10

20

30

40

50

15-24 25-34 All

15.7%

30.8%

24.7%

12.5%7.7%

20.0%



(hold no bank account) or underbanked (hold a bank account but use alternative financial services), and that percentage jumps to 45% of 15- to 24-year olds. Compare those percentages to just 27.7% of the overall U.S. population that is either unbanked or underbanked.3

Traditional credit reports have long been seen as a proxy for financial health. Part of the reason for the decline in financial health of younger adults is an inability to gain access to credit to buy a home and build wealth. Young consumers have poorer credit profiles than older adults due to a number of factors including a lack of credit history, lower incomes, and limited financial education. TransUnion estimates that 43% of millennials are subprime (a credit score of 600 or below on the 300-to-850 VantageScore scale). This compares to 33% of Generation X (37-51 years old), 20% of baby boomers (52-70 years old), and only 9% of the Silent Generation (70+ years old).4

Around 53 million5 consumers are not scoreable due to lack of information at the three major credit bureaus, and this population is heavily skewed towards those under 35. We estimate that approximately 20% of millennials—or roughly 15 million—do not have a traditional credit score. Leveraging non-tradeline data, LexisNexis alternative credit decisioning product, LexisNexis® RiskViewTM, can score around 80% of consumers who are otherwise not scoreable, including roughly 50% of “unscoreable” millennials.

RiskView data shows us that millennials are less financially healthy than the same age cohort just 10 years ago. The chart below shows the difference in credit scores

Credit Bureau and Alternative Data Coverage by Age


0-17

18-2

0

21-2

3

24-2

6

27-2

9

30-3

2

33-3

5

36-3

8

39-4

1

42-4

4

45-4

7

48-5

0

0K

5K

10K

15K

20K

Num

ber o

f Rec

ords

51-5

3

54-5

6

57-5

9

60-6

2

63-6

5

66-6

8

69-7

1

72-7

4

75-7

7

78-8

0

81+

Credit Bureau

RiskView

None

3. 2013 FDIC National Survey of Unbanked and Underbanked Households4. http://blog.transunion.com/wp-content/uploads/2016/05/Generational-Differences-in-Credit-FINAL-14042.png5. http://blogs.wsj.com/moneybeat/2015/10/08/new-fico-score-may-have-wider-impact-than-first-thought/



for 25- to 35-year-olds in 2006 versus 2015. While the distributions in the middle are mostly consistent, a significantly higher percentage of millennials rank in the poorest scoring segments (<650) and a significantly lower percentage rank in the highest scoring segments (>750).

These lower-scoring young adults cannot all be painted with the same brush, however. RiskView contains various unique attributes capable of predicting creditworthiness. In addition to individual attributes, the score makes use of indices designed to predict desired behaviors. Millennials in the 25- to 35-year age range actually are comparable to Gen Xers were in 2006 on the attributes of residential stability (e.g., frequency of address changes) and earning potential. Poorer performance appears to be driven primarily by a lower likelihood to fulfill contractual obligations and decreased evidence of asset ownership. We look deeper into the causes of declining asset ownership, below.

LexisNexis® RiskView™ Score for 25-35 Year Olds (2006 vs. 2015)

2015

2006


0%

10%

20%

30%

40%

50%

<600 600-649 650-699 700-749 750-799 800+

% o

f Pop

ulat

ion

RiskView™ Score

LexisNexis® RiskView™ Credit Dimensions for 25-35 Year Olds (2006 vs. 2015)

2015

2006


Low - 0

1

2

3

High - 4

Fullfilling ContractualObligations

(Willingness Index)

ResidentialStability

(Stability Index)

EarningPotential

(Ability Index)

Evidence ofOwnership

(Asset Index)



Millennial home ownership rates sufferInability to gain access to credit directly affects consumers’ ability to purchase a home and build wealth. While the most recent housing crisis and subsequent economic downturn affected property ownership rates for a wide segment of the population, younger Americans were hit particularly hard, with millennial home ownership rates cut nearly in half by the bottom of the recession in 2008 and 2009. While ownership rates have rebounded somewhat, they are still a great deal lower for consumers under the age of 35.

Millennials’ home values also have suffered. Among 25-34 year olds, those who are in the housing market are purchasing homes that are of significantly lesser value. While the median home value for U.S. consumers has dropped by around 4.5%

Property Ownership Rates (2006 vs. 2015)

18-24

25-34


0%

10%

20%

30%

2006 2015

8%

26%

5%

19%

Median Home Value Comparison

25-34

All


0

$100,000

$200,000

$400,000

2006 2015

$300,000 $320,520 $323,983

$253,805

$308,816



overall, it has dropped by 21% for 25-34 year olds. Whereas 25-34 year olds were generally buying homes whose values were in line with the general population, they are now purchasing homes that are at least 20% less expensive on average.

A recent report by the Pew Research Center indicates that living with a parent is the most common living arrangement for 18-34 year olds.6 Pew cites the phenomenon as being “fueled primarily by the dramatic drop in the share of young Americans who are choosing to settle down romantically before age 35.” Our findings track with Pew’s estimates of nearly a third of millennials currently living at home. While the trajectory has steadily increased over the past 10 years, it shot up rapidly after the housing crisis and looks to have stabilized since 2013.

Aside from changing lifestyle preferences, our data shows that access to credit also plays a major role in this trend. When we take a look at those with the highest RiskView scores (e.g., prime or near-prime), we find that a large number of financially responsible millennials are choosing to live at home. This phenomenon is most pronounced in the youngest segment of the population (18-24 year olds), which includes recent college graduates who appear to have the financial means to live on their own but are choosing not to do so.

Percentage of Millennials Living at Home

18-24

25-34


0%

5%

10%

15%

20%

25%

30%

35%

40%

20072006 2008 2009 2010 2011 2012 20142013 2015

6. http://www.pewsocialtrends.org/2016/05/24/for-first-time-in-modern-era-living-with-parents-edges-out-other-living-arrangements-for-18-to-34-year-olds/



Alternative data expands the addressable populationThe sheer size of the millennial population—75 million and growing—makes it an important driver of growth for all U.S. businesses. As millennials mature, their purchasing power and influence within the U.S. economy will expand. However, lack of access to credit has limited this generation’s ability to purchase homes and accumulate wealth.

With upwards of 40% of millennials currently unbanked or underbanked, this market is particularly ripe for high quality and relevant financial services. Still, financial institutions looking to bring them into the financial fold should tread carefully as younger consumers are slightly more risky and less financially stable then they were even 10 years ago.

Alternative data solutions like LexisNexis® RiskViewTM enable financial institutions to underwrite these consumers more confidently. Approximately 20% of millennials do not have a traditional credit score or report, and RiskView can score up to 50% of that segment. Data shows that between 30% and 40% of these young consumers who do not have a traditional credit score actually qualify as prime or near-prime borrowers.

Percentage Living at Home (Highest Credit Scoring Tiers)

18-24

25-34

35+


0%

10%

20%

30%

40%

50%

60%

20072006 2008 2009 2010 2011 2012 20142013 2015

20%

80%

Millennials without traditionalcredit score or report

Between 30% and 40%qualify as borrowers.



In addition to identifying credit-worthy millennials who do not exist on credit bureau files, the non-tradeline data found in RiskView also provides a clearer picture of their financial profile. RiskView contains various unique attributes that predict creditworthiness, such as address stability, earning potential, educational background, and evidence of occupational licenses. For example, we find that consumers who have professional licenses are 50% less likely to default than those who do not have them.

The sources for this deeper level of insight into consumer behavior—considered “alternative” simply because they do not come from a traditional credit bureau or credit application—include mainstream consumer records such as:

• Property deed records and tax assessments

• Bankruptcy filings

• Change of address records

• Phone and utility records

• Professional licenses

Drawing on these sources can provide a greatly enhanced view of the risk, profitability potential and credit worthiness of these younger borrowers, enabling financial institutions to more confidently underwrite loans for this bourgeoning population.


About LexisNexis® RiskView™LexisNexis® RiskViewTM provides you with unprecedented insight into the current financial health of underserved consumers in the millennial population and the confidence of proven risk intelligence from a trusted source to help your business. To learn more, contact 1.800.869.0751 or visit LexisNexis.com/CreditRisk. RiskViewTM is a consumer reporting agency product provided by LexisNexis Risk Solutions Bureau LLC and may only be accessed in compliance with the Fair Credit Reporting Act, 15 U.S.C. 1681, et seq. Due to the nature and origin of public record information, the public records and commercially available data used in reports may contain errors.

LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. RiskView is a trademark of LexisNexis Risk Solutions FL Inc. Copyright © 2016 LexisNexis. NXR11493-00-0816-EN-US

For more information, call 800.869.0751 or visitlexisnexis.com/creditrisk

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