By Bill Handel
General Manager and Chief Economist of Raddon, a Fiserv company
If one word sums up the economy in the second half of 2025, that word would be “precarious”. Granted, the U.S. unemployment rate holds reasonably steady at 4.2%, inflation appears to be cooling (albeit slowly – it’s been very stubborn) and GDP during the second quarter of 2025 was positive at 3% following a -0.5% growth in the first quarter, a result that was significantly warped by anticipation of tariffs coming into play and associated import activity (imports actually factor as negative in terms of GDP).
However, there is a lot of softness underlying the macro data. The amount – and speed – of change taking place not only in Washington, but all across the world, makes the economy extremely volatile, and we anticipate that the Federal Reserve is going to be highly reticent to cut interest rates to any significant extent – these will likely remain systemically high. There’s also a bifurcation in the way Americans view the economy. Raddon’s recent research found that approximately half of Americans believe that the country is currently experiencing a recession.
This perception very much correlates with age – younger generations are much more inclined to believe we are in recession for three reasons. Younger individuals do not have the same assets and ergo do not benefit from the wealth effect in the same way old generations do. Home ownership remains a huge challenge due to affordability issues related to high rates and high home prices, so, Gen Z and Millennials are struggling to get on the property ladder. And last but not least, younger generations are burdened with more debt, particularly as student loan payments come due again.
Against such a volatile economic backdrop, there are numerous ramifications for credit unions in terms of how they look to bullet-proof their businesses in this environment. Fundamentally, credit unions should focus on their business models and those things that have made them successful – building an operating model that works in all economic environments – strong and weak, and all regulatory environments. The key focus should be on deepening the relationship with credit union members in terms of the balances that they keep.
Navigating Persistently High Interest Rates
Even as inflation moderates, credit unions (as mentioned earlier) should prepare for a sustained period of higher interest rates compared to the pre-pandemic era, which will influence lending, deposit strategies, and overall profitability. There are both mid-term and long-term solutions to consider.
Currently, the mortgage market is somewhat “locked -up” – a side effect of the low-rate environment that endured during the pandemic. This environment has generated an abundance of people in the U.S. who are sticking with their 2.5-3.5% mortgage rates; unwilling (or unable) to afford a new home as it would mean borrowing at the current rate – which is in some cases at 7%. In a recent survey conducted by Raddon, a Fiserv company, 58% of consumers cited this as a major barrier to moving.
The stagnant mortgage market is having a knock-on effect on the younger generation, who are struggling to find houses to buy, due to the reduced inventory – thus driving up prices even further. It becomes a pernicious cycle.
But as is often the case in financial services, where there is challenge there is opportunity. Credit unions must look to the opportunity in the U.S. mortgage market by extending support to Millennials hoping to buy, while at the same time giving the older generation the means they need to move or upsize – such as home equity lending solutions.
One long-term area of opportunity for the younger generation may involve wealth management and deposit account innovation. Naturally, deposit pricing is a discipline that has somewhat fallen into obscurity in the last two decades; interest rates were so low that it made little sense to devote resources to deposit management – that is, deposit product design and pricing. However, it is now time to re-build this capability within credit unions and bridge a key funding gap.
Adapting To Evolving Consumer Behavior And Digital Demands
How exactly should financial institutions build products and services that will be attractive to the increasingly influential Gen Z and young Millennial segment? While competitive rates are fundamental, long-term success in the market will also hinge on deepening relationships through hyper-personalized financial advice, educating young consumers about the exclusive benefits of credit unions, and innovating and adapting to their digital demands.
Here are three key ways credit unions can connect with the younger demographic:
1. Modernize communication
For the last several decades, the typical consumer has adhered to a somewhat standardized life-career path. Secure a stable job, build up savings, then retire at around 65 years old. Today, estimates suggest Gen Z and Millennials will have up five to seven different careers throughout their working lives. This entirely changes attitudes toward the appropriate retirement age, as well as how and by how much they save, and therefore what financial products they will seek out in maturity. Credit unions that understand the unique needs of young people and how they should be served will forge ahead.
2. Leverage innovative tools
Equally significant are the tools and technology deployed to interact with this increasingly influential demographic. Whereas in the past consumers would have been happy to attend seminars or in-person meetings with institutions, now, young people are increasingly preferring digital, interactive tools – such as gamified budgeting and saving applications. These are key areas of concern for Gen Z and an underserved area in financial services.
3. Double down on education and financial wellness
Underpinning the previous two initiatives is consistent consumer education. What credit unions have in their favor here is a reputation for promoting financial wellness and literacy, as well as a willingness to look out for their members. This has roots in the very makeup of credit unions, as not-for-profit organizations whose primary stakeholders are their members, and by extension their families. This unique selling point should not be downplayed, especially given the fact that within the next two decades, around $50 trillion in assets will be transferred from baby boomers to millennials and Gen Z.
Strategic Growth Through Efficiency And Member-Centricity
In today’s highly competitive and somewhat uncertain economic climate, the credit unions that double down on the core mission of member wellbeing and community building, prioritize operational efficiency, and leverage data analytics to better understand their member’s needs, will be best positioned for consistent, sustainable growth.
Given the financial services industry is an inherently a data-rich space, analytics have become the key to unlocking effectiveness and revenue. Indeed, if credit unions can intimately understand their members’ preferences, challenges, and financial goals, growth is there for the taking.
One of the most significant return-on-investment gains from data is to be found in the marketing sphere. In the 1980s and 1990s, institutions took a mass marketing approach where products and services were sold to end-users against broad segmentations, such as age and income. While significant progress has been made since in terms of targeted marketing, credit unions should go one step further and begin to think of their members as individuals with unique needs. Only by capturing precise data and analyzing it effectively can true personalized service be achieved.
For example, if an institution collects data from a member, it can gain an understanding of the spending patterns and even predict their emerging financial needs. In some cases, AI is already being deployed to expedite this process – digesting all the relevant data and offering personalized recommendations. Research suggests that consumers are responsive to this – particularly the younger demographic.
Changing Perceptions
Every consumer bases their financial decisions on three factors: price (interest rates and fees), convenience (which is both locational and technological), and member experience (also referred to as service quality).
Thanks to the tax advantage, credit unions’ core advantage is often primarily price. For too long this too often has been the main factor that credit unions have used to differentiate. To remain resilient and navigate today’s complex marketplace, credit unions must shed the perception that they are merely a supplementary financial service provider that provides a significantly lower rate on auto loans. Instead, they need to become known for a much broader array of germane financial products with competent technology and responsive service.
While a small portion of consumers are aware of the other kinds of products credit unions offer, the holistic suite of services seems to be one of the best kept secrets in the industry. It’s time credit unions begin communicating their full range of offerings, in the right way, to their member bases. Upscaling the data analysis process, education, and engagement with the younger demographic are all critical pieces to solving this puzzle. This is the credit union's true roadmap to resilience, irrespective of the direction in which the economic winds are blowing.
Bill Handel is General Manager and Chief Economist of Raddon, a Fiserv company.