Discover how payment habits vary across generations with our guide, covering trends, preferences, and the impact on consumer behaviour.
You may not have given much thought to how different generations pay for things, and how this could affect your business. But whether we’re talking about Baby Boomers, Generation X, Millennials or Gen Z, each has their different ways of shopping, and understanding (or not understanding) your customer base could either make or cost you money. Whether it’s the traditional payments preferred by older customers or the range of digital options that have proved popular among younger people, generational differences do exist in the way people want to pay for things, which companies developing and marketing payments solutions need to keep in mind.
Born between 1997 and 2012, Gen Z are the first generation to have lived their entire lives in the shadow of the internet, and this is reflected in their spending habits. More than half of Gen Z use Instagram to find new products and services, while 70% of them shop online using a smartphone. They are most likely to make payments using microchip cards and are among the top users of digital wallets. They’re also the only generation that is continuing to grow in size as they reach adulthood and the greater spending power that comes with that.
Born between 1981 and 1996, millennials are those who started to come of age in the early years of the internet and the turn of the century. They are the most likely to favour contactless payment and drove the massive expansion of that payment method during the pandemic. Even now, research by Visa showed that 56% would avoid shopping somewhere which didn’t offer contactless payment options. They’re also very drawn to value, particularly in the form of loyalty programmes.
Born between 1965 and 1980, Generation X is the youngest generation which can clearly remember the pre-internet age. As such, it should come as little surprise to find out that this is the generation that has the broadest spread of preferred payment types. They’re also more concerned about security than any other of these groupings, and are the most likely to inspect terms and conditions with a magnifying glass in order to ensure that they’re not going to get stung by hidden charges. They also have the highest number of regular bills to pay, and are therefore the most likely to forget to pay them.
Born between 1945 and 1965, Baby Boomers are unsurprisingly the generation most likely to want to pay by more traditional payment methods, in particular cash, with even cheques having now largely fallen from favour. They value excellent customer service in in-person transactions, and favour loyalty and reward schemes. But for all that we might think that they’re stuck in their ways, there is evidence that they are increasingly using more technological payment methods, with less than one in five still holding out to shop in-store only.
The growth of ‘Buy Now Pay Later’ schemes such as Klarna cuts across all generations, and it isn’t quite being used in the way that we might have expected. Rather than being driven by financial constraints, this payment method seems to be utilised in order to spread out interest and avoid interest.
Furthermore, according to the TransUnion Customer Pulse survey for Q3 2023, Gen Z aren’t even the biggest user of these services any more. In their survey–the first to take into account Buy Now Pay Later services–TransUnion found that compared to 54% of Millennials and 39% of Gen X who reported spending above £500, only 35% of Gen Z said they spent above this amount.
Buy now pay later options carry both costs and benefits for both consumers and businesses. For consumers, they’re convenient and easy to use, with no interest charges or fees if payments are made on time, while businesses not only get higher conversion rates and average order values, but also get the full amount paid upfront. But there are also costs. Consumers have to resist the temptation to splurge, while businesses will be hit by higher merchant fees for this type of payment.
A 2021 survey by YouGov found that 85 percent of 18-24 year olds and 79 percent of 25 to 34 year olds are using mobile banking apps more often. They found that among those who have used digital banking services more since the pandemic began, 35 percent of 18-24 year olds increased their usage, followed by 32 percent of 25-34 year olds and 31 percent of 35-44 year olds. Of course, this trend was accelerated by the once in a generation conditions of the pandemic, but there has been little evidence since then that this is going to reverse again.
According to a 2023 study by Finder, 25-34 year-olds are most likely to have a credit card, with three-quarters (75%) of this age group owning one. They are closely followed by 18-24 year-olds, where 74% own a credit card. Those who are aged 45-54 are least likely to have a credit card, as less than two-thirds of this age group (63%) own one.
A 2021 study by Marqeta of 4,000 consumers across three continents, including 1,000 UK respondents, showed that 61% of consumers felt confident enough with contactless payments to leave their wallet at home and just take their phone – a figure that rose to over three quarters (77%) for UK Gen Z respondents.
But while Baby Boomers might be slower to adopt digital banking than Gen Z, that doesn't mean they aren't keenly interested. Repeated studies have found that older generations end up adopting the same technologies as younger generations. It’s just that the adoption curve slows as the demographic gets older.
Consumers between the ages of 25 and 55 place the highest importance on digital banking and are most likely to switch banks to gain access to it. By comparison, consumers 56 and older are least likely to switch banks for access to new digital-banking tools. Nevertheless, consumers in this demographic match, and in some cases exceed, younger generations’ desire for easier access to mobile apps and web portals. Consumers aged 18 to 24 have the greatest level of dissatisfaction with the digital-banking tools available to them.
Businesses are strongly advised to tailor their customer experiences to different age groups in order to ensure that you meet their often differing expectations. Some examples of how you might achieve this could include:
Gen Z: embrace mobile payment options and contactless payments, along with loyalty programmes offering digital rewards and discounts.
Millennials: provide a seamless online payment experience with a focus on secure transactions, and implement personalised offers and loyalty programmes to enhance engagement.
Generation X: offer a variety of payment methods, including credit cards and online banking, while highlighting robust security measures to gain their trust.
Baby Boomers: accept traditional payment methods like cheques and cash, prioritise in-person interactions, and ensure that you always deliver exceptional customer service.
While there can be a temptation to roll one’s eyes at the mention of different generations, it is clear that fast-paced changes that have come to finance over the last quarter of a century have had a definite effect on the spending habits of different age groups. It is completely understandable that older generations would be slower to adopt the latest payment trends, or that younger generations, who bore witness to the 2008 financial crash as children, could be more resistant to taking on debt than their elders.
The key to being able to maximise the benefits to your company is to understand the demographic of your customer base and combine this with both traditional payment methods and modern solutions to meet their expectations. Excellent customer service is still essential, but as the range of ways in which people can pay you continues to expand, so your business can only benefit from offering them the same degree of flexibility. Your bottom line will thank you for it!
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