Senior Citizens See Largest Gain in Credit Card Debt
as Recession, Medical Costs Take Toll
New survey finds credit card debt climbing due
to dwindling savings, stagnant wages, medical debt
| |
 |
|
| |
|
Age Grp |
2005 |
2008 |
% Ch. |
|
18-34 |
$9,020 |
$9,111 |
1% |
|
35-49 |
$9,853 |
$10,514 |
7% |
|
50-64 |
$10,059 |
$9,342 |
-7% |
|
65
+ |
$8,438 |
$10,235 |
26% |
|
|
July 29, 2009 A survey released yesterday
indicates senior citizens may be experiencing by far the worst financial
pressures of the recession that began in 2008. The report examined the
change in credit card debt in the U.S. among low- and middle-income
households and found a dramatic increase 26 percent - in the amount
owed by older Americans.
As the recession continues to squeeze financially
vulnerable American households, they are turning to credit cards to make
ends meet, according to "The Plastic Safety Net: How Households are
Coping in a Fragile Economy," a new report published today by Demos, a
national research and policy center.
The survey in 2005 found senior citizens with the
lowest average credit card debt among all age groups. These Americans
aged 65 and older increased credit card debt by 26 percent since 2005,
the second highest average debt of any age group, after those aged 35 to
49 (see Table 2 below news story).
Average credit card debt was higher for households
with higher incomes.
This increase in debt among seniors is not
surprising, according to the report, given that the data reflects the
beginning of the economic downturn in 2008, which greatly reduced the
value of retirement savings.
In 2008, more than one-half of indebted low- and
middle-income households (52 percent) cited medical expenses as
contributing to their credit card debt, the report says.
In fact, compared to all other expenses we
inquired about in the survey, out-of-pocket medical expenses was the
most frequently reported expense that contributed to credit card debt.
On average, these households reported that $2,194
in credit card debt was attributable to medical expenses.
Older households, those 65 and over, reported the
highest amount of credit card debt due to medical expenses: $3,988. In addition to credit card balances related to medical
expenses, 30 percent of households also reported carrying an average of
$3,174 in additional medical debt not reflected on their credit cards.
|
Table 5. Households Forgoing Care or Treatment to Reduce Medical
Costs |
|
In the past year, did you try to reduce your medical expenses by
doing any of the
following: |
|
Did not go see doctor or visit a clinic when you had a medical
problem? |
36% |
|
Did not fill a prescription or postponed filling a prescription? |
33% |
|
Skipped medical test, treatment or follow up? |
30% |
The survey asked a series of questions about the
type of out-of-pocket medical expenses (not including premiums) that had
contributed to the households credit card debt over the last three
years. The top two out-of-pocket charges cited were
prescription drugs and dental expenses.
This is Demos' second national survey examining
credit card debt among those whose incomes fell between 50 percent and
120 percent of local median income.
Research shows that credit card debt in America has
quadrupled since 1989 and increased 41 percent just since 2000.
Americans now owe over $1 trillion in credit card debt, owing largely to
job instability and medical costs, and personal bankruptcies rose from
673,615 in 2007 to over 1.2 million in 2009.
And, just as the recession began to take hold,
millions of families had already depleted their home equity to pay off
costly credit card debt as home values decreased, leaving them with few
assets on which to fall back.
The "Plastic Safety Net" survey helps provide a
more accurate picture of how debt is accumulated and how it impacts low-
to middle-income American families, especially during the economic
downturn.
"American families are facing financial hardship
not experienced for generations, and we've commissioned these surveys to
tell us precisely why households are turning to credit cards so often"
says Tamara Draut, Vice President of Policy and Programs at Demos and
co-author of the report.
"The results are clear: wages have stagnated while
medical and housing costs have skyrocketed, and if confronted with a
layoff or health emergency there are few, if any, personal or public
safety nets adequate enough to help in a crisis. Households are turning
to high-cost credit cards to keep afloat."
Other key survey findings from "The Plastic Safety
Net":
● The average credit card debt of low- and
middle-income indebted households in America is $9,827.
● The average amount of time that households
reported being credit card indebted is 5.1 years.
● 3 out of 4 low- and middle-income households
reported using their credit cards as a safety net--relying on credit to
pay for car repairs, house repairs, layoff or job loss, money given or
loaned to relatives, college expenses or starting or running a business.
● More than 1 out of 3 households reported using
credit cards to cover basic living expenses, on average for 5 out of the
last 12 months.
● The most important predictor of higher
"debt-stress" levels was whether a household relied on credit cards to
cover basic living expenses such as rent, mortgage payment, groceries,
utilities or insurance.
● For 1 in 2 households out-of-pocket medical
expenses contributed to a families' credit card debt, with an average of
$2,194 dollars related to out-of-pocket medical expenses.
● The average interest rate paid on a families'
card with the highest balance was 14.8% with close to 1 in 4 indebted
households paying more than 20% interest on their card.
"The Plastic Safety Net" also reports that
Americans are increasingly relying on credit cards to pay for essentials
as wages no longer cover expenses:
In the past five years credit card indebted
homeowners used an average of $14,344 in home equity to pay down credit
card debt.
The majority of credit card indebted households
cited using tax refunds toward debt reduction and nearly half of
respondents cited working extra hours or taking on an extra job in order
to get out of debt.
"For a long time families have been using credit
cards as a safety net in absence of stronger social policies and federal
regulation-a condition exacerbated by today's recession," said report
co-author Jose Garcia, Associate Director of Research and Policy in
Demos' Economic Opportunity Program.
"With so many American households putting their
basic necessities on credit cards and using their limited home equity to
pay it off, if they have any equity at all, we have a nation with
millions on the financial edge."
Among the report's key policy recommendations:
● Promote increased savings, not increased debt,
to help families meet unexpected financial emergencies.
● Modernize the unemployment insurance system
and expand coverage and benefit levels.
● Strengthen the position of low-wage workers in
the labor market.
● Address rising health care costs and the
growing number of uninsured.
● Establish a new agency focused on consumer
financial protection.
Demos describes itself
A multi-issue national organization, Demos
combines research, policy development, and advocacy to influence public
debates and catalyze change. We publish books, reports, and briefing
papers that illuminate critical problems and advance innovative
solutions; work at both the national and state level with advocates and
policymakers to promote reforms; help to build the capacity and skills
of key progressive constituencies; project our values into the media by
promoting Demos Fellows and staff in print, broadcast, and Internet
venues; and host public events that showcase new ideas.
Homepage -
http://www.demos-usa.org/ (complete copy of survey available at
site)
Other reports on the survey:
● Credit card debt rises faster for those 65 and
older -
Click to the full story at USA Today
● Grandparents are drowning in credit card debt
-
Click to the full story at CNN Money
Related reports:
● Credit We Dont Deserve: Americans are
drowning in $1 trillion in outstanding credit card debt. How did we get
into this mess? -
Click to the full story at Newsweek
