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Retiring In The Red:
A New Reality For Older Americans
America’s
Seniors Taking on Unprecedented Levels of Debt to Cope with Shrinking
Retirement Income and Rising Health Care Costs, as well as, Abusive
Lending Practices
March 29, 2004 – A new study shows
senior citizens are the fastest growing age group headed into bankruptcy
court, primarily based on their growing credit card debt – an increase
of 217 percent in the last ten years. This situation worsens with the
shrinking wealth of seniors.
The report, “Retiring in the Red: The
Growth of Debt Among Older Americans,” was released last month by Demos,
a non-partisan, public policy group based in New York City. For a pdf
copy of the complete report -
Click Here
The report’s new data, based on an
in-depth analysis of the most recent Federal Reserve’s Survey of
Consumer Finances, as well as dozens of other sources, paints a
troubling picture for the financial health of America’s population of
seniors and those about to retire.
Among the report’s key findings:
Average self-reported credit card debt
among seniors age 65 and over increased 89% to $4,041, between 1992 and
2001.
Seniors between 65 and 69, presumably
the newly retired, reported a staggering 217% increase in credit card
debt to $5,884 over the same period.
Credit card debt among “Transitioners,”
those aged 55-64, jumped 47% to $4,088 over the last decade. In fact,
the average credit-card indebted family in this age group spends nearly
one-third of its income on debt payments.
The report’s findings put into stark
relief the trouble ordinary older Americans are having at making ends
meet in this economy. Over the last two decades, retirement wealth
(pensions and social security) has fallen for all but the wealthiest
seniors. Also, the value of savings-based sources of income – savings
accounts, CDs and other conservative investments favored by seniors –
has steadily declined. By 2001, more than one-third of seniors were
depending on Social Security for over 90% of their income.
Tamara Draut, co-author of the report
and Director of the Economic Opportunity Program at Dēmos, explained:
“As older Americans face shrinking income and savings, just one
unexpected expense – an illness, hospitalization, or even a repair to an
aging home – can start a vicious cycle of debt. Seniors are turning in
droves to credit cards as a safety net, but high interest rates and fees
are trapping many into a nearly inescapable web of debt.”
Added Sharon Hermanson, senior policy
advisor at the AARP’s public policy institute: “The findings in the
Dēmos report dispel the myth that seniors are immune to the consumer
debt problems faced by the rest of the population. In fact, older
Americans are proving to be even more susceptible because their incomes
continue to erode at the same time that their health care and housing
costs increase. This is a national issue of deep importance.”
According to the report, deregulation of
the credit card industry has allowed companies to take advantage of
tough economic times. As the report documents, credit card interest
rates now routinely top 20%, penalty fees are at record highs, and “low,
introductory” rates can be jacked up over 30% if a cardholder misses one
payment by as little as one hour. Usurious practices encouraged by this
“no-holds barred” climate help credit cards remain one of the banking
industry’s most profitable sectors.
As the economic insecurity of both
middle- and low-income seniors has grown acute, the need for changes in
policy – and industry lending practices – has become essential and
immediate. Among the report’s recommendations:
Enact a National Usury Cap
that would be floating and indexed to a Federal Rate. This step would
enable lenders to continue using “tiered pricing” based on customers’
risk profiles, but put an end to interest rates of 20 and 30% above
prime, which are unjustifiable by any measure.
Demand Better Disclosure and
More Reasonable Grace Periods by credit card companies.
Consumers deserve straight-forward answers to basic questions about card
policies, as well as an end to the “gotcha” penalties that raise
interest rates to 29% or higher if a payment arrives after 1 or 2 pm on
a given due date.
Stamp Out Predatory Lending
practices of brokers and lenders, which often ensnare desperate, elderly
consumers through costly sub-prime home financing products. Congress
must take action soon and resist industry pressure to preempt state laws
with more lax Federal legislation.
Maintain Existing Bankruptcy
Laws so that elderly Americans do not face even greater
obstacles to financial recovery. Sadly, the bankruptcy reform bills
that Congress has been considering for the last five years would all do
just that.
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