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> Posted by Sonja Kelly, Fellow, CFI

Since the release of our paper, Aging and Financial Inclusion: An Opportunity, I have been considering the challenge of market segmentation using the life course. This is not unexplored terrain at the Center for Financial Inclusion. Beth Rhyne articulated a life course approach during our Looking Through the Demographic Window project, which we have captured in the infographic embedded at right. I have been hearing from microfinance institutions that some efforts are underway to segment clients by their life stage, though this remains a relatively untouched area in the industry. For a great example of segmentation, however, I only had to look to the spam filter on my email.

Most of the emails that get caught in my spam filter are about body image. I receive messages advertising dieting pills, on the one quick fix to reduce belly fat (you won’t believe which celebrities use it!), and how to get toned abs within a week. This makes sense—I work out regularly, and I (try to) watch what I eat. The emails are tailored to me.

In chatting with my colleagues, I find that they also receive targeted emails. Some women in our office who are older than me receive emails for walk-in tubs. Singles get emails that point them to dating websites. Some of the younger men in our office get emails that refer to “satisfying” their girlfriends. And the spam filters of older men in our office collect emails about (ahem) performance-enhancing pills.

These are, of course, gross generalizations—the life course cannot possibly be reduced to dieting, walk-in tubs, and bedroom performance. But why is it that the email caught in my spam filter is more skilled at customer segmentation using the life course than my financial institution’s product line? Even more than being successful at segmenting a potential client base, spam marketers are successful at moving this potential client base to action, according to MailChimp. They have a simple message and a call to action. Their “click rates,” or the rate at which people click on links, are higher than average.

What if financial institutions were able to take a page out of a spammer’s playbook and use it to get people in their 20s to participate in long-term savings for the future, or to save for emergencies in their 40s so that they have a cushion when their spouse gets sick, or to put aside some money for insurance in their 50s so that if their house is decimated it does not wipe out their only major asset?

Data on customer age is something that financial institutions already have given “know your customer” rules within institutions. In an online global survey of providers we conducted last year, we learned that 81 percent of financial institutions do keep track of the ages of their customers over time. In addition, 63 percent of the same sample reported that they store this information within their MIS or IT system. However, most of these institutions are not using age as a way to create suitable products for clients.

Age-appropriate products are something that customers do want. Monique Cohen related a story at our meeting last week in New York about a group of middle-aged women from SEWA, a microfinance institution in India. These women approached the institution’s leadership and asked for life insurance on their husbands, recognizing that their husbands were older and that they would likely have a significant number of years without them. When the microfinance institution replied by telling them they would not be able to afford the product, they replied with, “Create the product, and let us worry about whether we can afford it.” The institution created the product, and the women bought it.

In the last decade there has been major growth in services for youth. We’ve seen, for example, credit for school fees, training-linked credit to teach entrepreneurship to young people, and savings accounts to teach younger people the value of putting away funds for the future. These examples—of middle-aged women in India and products built for youth—are exceptions in terms of age-based customer segmentation.

While customer segmentation using age is not very common, the industry has segmented customers by income brackets for years. Lower-income customers, for example, are given accounts with fewer features and add-on services. Higher-income customers are given accounts that allow them additional services—more face time, higher interest rates on savings, higher overdraft protection.

Most financial institutions have a long way to go to be able to offer appropriately tailored financial services for each stage in the life course. And I’m not totally serious about taking lessons from spammers. But, given the age-based messages that people already get, the financial system needs to catch up—and indeed it can capitalize on this opportunity, recognizing that people have different financial needs at different life stages.

Have you read?

Moving to Action on Aging and Financial Inclusion

Aging and Financial Inclusion: An Opportunity

Microfinance as a Tool for Active Aging