Seniors in debt: a new and growing problem

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Poverty numbers rose for older Americans in 2021 and it was the nothing but demographic to experience increasing poverty, according to the US Census. Crumbling pensions, increases in Social Security’s normal retirement age and large gaps in access to retirement savings plans at work are decreasing income security for the elderly in the United States.

At the same time, in addition to their insufficient retirement assets, millions of older adults struggle with more debt, leaving their finances quite fragile. Financial vulnerability is usually measured as the proportion of debt payments in income. When a household exceeds at least one of the four critical thresholds: a mortgage loan-to-value ratio of more than 80%, a ratio of non-housing debt to liquid assets of more than 50%, rent of more than 30% of the income or less than 3 months of cash income – it is an indication that debt payments are crowding out living expenses.

Growing Senior Debt

Older households are more likely to be in debt than they were 30 years ago, and a typical older household had about three times as much debt in 2016 as it was in 1989, adjusted for inflation. The increase in financial vulnerability will be highlighted in the coming Charts for Older Employees and Retirement Securitya research collaboration between The New School’s Schwartz Center for Economic Policy Analysis and the Economic Policy Institute, funded by the RRF Foundation for Aging.

Rising debt has damaged the financial health of older working households and negatively impacted their ability to save for retirement and protect their retirement savings when shocks occur. While the increase in financial vulnerability partly reflects the mortgage boom of the 1990s and early 2000s, it is only part of the story. Rising levels of credit card balances, car loans and student debt are also hurting the finances of older households.

Growing inequality in financial security among seniors

More than half of lower-income households aged 55-64 were financially vulnerable before the COVID-19 pandemic, based on their debt burden, housing costs and emergency savings. In 1992, about a third of households in the same group were financially vulnerable. Rising debt has hurt older households’ finances in the wake of the Great Recession, although wealthier older households — which sit in the top 10% of the income distribution — have since made up for the losses they incurred in 2006. Meanwhile, households in the middle and bottom half of the income distribution remain in historically high levels of financial vulnerability. This means that when shocks like the COVID-19 pandemic hit, these households had less financial support to soften the blow.

Causes of Financial Vulnerability in Seniors

The causes of the increasing debt burden are mainly credit card and mortgage debts. The percentage of elderly people with credit card debt is one third higher than thirty years ago. The median balance is over $2,500 for individuals aged 50-79. More seniors have mortgage debts than ever before, putting them at risk of default and eviction if payments are missed.

Nearly 1 million people aged 65 or older have student debt – a fivefold increase in just 15 years. They are the fastest growing group of student loan debtors and make up the bulk of defaulting loan holders. Older black households have seen the fastest rise in student loans. The proportion of black households aged 55-64 with student debt increased fivefold between 1992 and 2019, while the proportion of black Americans in this age group with a bachelor’s degree only doubled. The proportion of households with student debt is almost twice as high for black households as for white ones.

Medical debt is still a problem, even though the elderly are in Medicare. Using data from the Federal Reserve, we find that nearly 9% of seniors have delinquent medical bills, exposing them to aggressive debt collection practices.

The RRF Foundation for Aging has launched a call to action to tackle the indebtedness of the elderly and is calling on lawyers, researchers, service providers, financiers and others to get involved in tackling the problem. I agree that more research is needed to focus on questions about good versus bad debt – high risk is bad debt, for example. We need to weigh up the evidence on how much “financial literacy” can help, or find ways to improve enforcement against financial predators. It makes sense to say that both are necessary, but public policy is about priorities and any good legislator should judge where they would spend the first dollar.

Barbara Schuster, ABD, The New School, contributed substantially to this article.

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