Intergenerational trauma and its effect on financial services – Pender

The need for the school curriculum to be updated has never been more pressing, with many people calling for a switch away from more traditional math in exchange for more focus on what interest rates are and how they are calculated – and even on what basic banking terms mean. The scary fact is that, according to a Virgin Money report, only 6% of 16-24-year-olds say they learnt about finance at school, with 43% saying they get their financial education online or on social media – predominantly YouTube or TikTok.

What can compound the problem is intergenerational financial trauma. We are talking about negative experiences suffered by parents or grandparents, leaving them with negative opinions that are then passed down to those now needing a mortgage or other financial products.

For example, many current borrowers have inherited a mistrust of lenders from their parents, especially those parents who had a mortgage in the 1980s, who suffered from rocketing interest rates of up to 15%. Similarly, they may have older family members who had endowments that didn’t deliver or pay off their mortgage. Following events such as these, people lost much that was dear to them, with a significant number having their homes repossessed.

It is understandable that this experience is communicated to younger borrowers, but it can leave them with a deep feeling of scepticism regarding financial organisations – a feeling that now hampers them.

Someone with this mistrust who then experiences financial difficulties can be terrified of engaging with a lender. They could feel a sense of shame about not being able to keep up with payments or provide for their family. They are also likely to be carrying a trauma leading them to believe that if they speak with a lender to discuss any financial problems, it will lead to them having their home repossessed, when in reality, they are less likely to if they communicate with their lender and put a plan in place.

Education can come from anywhere

Communication has arguably never been more important. Things have moved on a lot since the 80s. There is a lot more support and lenders are now there to help and support people, especially those in a vulnerable situation.

Those of us in advice or in lending institutions have a need to reach out and help to build those communication pathways and, in turn, build trust.

We need to communicate regularly with borrowers so they understand their options after they have bought a property, not only when things are going well but also when they hit a rocky patch. This could be through the traditional letters, but also could be through apps, websites or social media options. Many Millennials and Gen Z people prefer to reach out by email or instant messenger rather than by speaking on the phone, so having these options easily available will make it more likely that someone will reach out when they need to.

A good servicing platform enables much of this, so people can reach out quickly and easily in the way that makes them feel most comfortable.

It is not only the young, however; there are many older borrowers on a standard variable rate (SVR) or coming to the end of an interest-only mortgage in positions where they don’t know how to make payments more affordable or what to do at the end of their term. This may be the generation that has been burnt the most, but there are solutions, such as retirement interest-only (RIO) or equity release.

The purpose of communication is to build trust and ensure that our most vulnerable borrowers, be they old or young, know that there are solutions and that people in our lenders, banks and building societies are on hand to help them.