Stories about Americans’ increasing debt load have become something of a recurring theme in financial reporting. About two weeks ago, U.S. credit card debt hit an all-time high of $930 billion, higher than the previous peak hit just ahead of the financial crisis of 2008. That data comes from the Federal Reserve Bank of New York, and was released on Feb. 11.
Much of the attention out of that report went toward the uptick in delinquencies that has followed up with the increase in card debt. According to the New York Fed, the serious credit card delinquency rate — with serious delinquency defined as being 90 days late or more on a payment — has increased to 5.32 percent, the highest it has been in about eight years. As of the start of Q3 2019, that rate was about 5.13 percent.
Young borrowers also had a spotlight shone on their borrowing, as they lead serious delinquencies, demographically speaking, with rate swelling to nearly 10 percent during Q4 — its highest level since Q4 2010.
“There are increases in the credit card delinquency rate that make you wonder whether some parts of the population are not doing as well, or whether this is just a result of more relaxed lending standards,” said Wilbert van der Klaauw, senior vice president at the New York Fed. “It’s something we are looking into.”
And while general debt and the big bounce in delinquency among younger borrowers caught quite a bit of attention, perhaps the more interesting trend unearthed by the recent consumer debt data is the fact that the young aren’t the only group carrying a larger debt load, and potentially struggling with it.
As it turns out, senior citizens — defined in this data as those over the age of 70 — are an increasingly debt-burdened demographic, and have been becoming one for quite some time. Between 1999 and 2019, according to the New York Fed, debt among older Americans increased by 543 percent, the biggest increase in any demographic segment. Currently, according to data from the Federal Reserve Bank of New York, the total debt burden faced by seniors has grown to $1.1 trillion. And jump down a decile, the situation is much the same — consumers in their 60s saw their debt burden bounce up by 471 percent to $2.14 trillion.
What is pushing up that debt level? According to the data, a whole host of factors. The cost of medical care has gone up, and employers have increasingly shifted toward high-deductible healthcare insurance plans as a mechanism of moderating cost. Corporate culture has also shifted away from defined benefits retirement plans (pension) in favor of defined contribution plans (401Ks). Those changes have been paired with soaring costs, particularly those connected to healthcare and education. Student loan debt for 65-year-olds increased 886 percent per person between 2003 and 2015, according to the New York Federal Reserve.
Increased costs paired with diminishing liquidity for older Americans, according to a report published by the Employee Benefit Research Institute (EBRI), indicates that seniors increasingly run the risk of running short on funds in retirement — which in turn pushes up the likelihood of taking on debt. In some cases, an awful lot of it — according to EBRI an increasing number of households headed by someone over the age of have 75 debt payments that add up to more than 40 percent of their income.
That, most experts agree, is excessive and a symptom of economic insecurity, though most financial planners do note that not all cases of carrying debt necessarily represent such an extreme case. For many older Americans, carrying debt can simply be a strategic financial decision to better manage retirement, certified financial planner Glenn Downing told CNBC.
“Ideally, people would go into retirement with all their debt in the rear-view mirror,” Downing said. “But sometimes it doesn’t work out that way.”
The question, he said, isn’t about absolute debt levels, but about cash flow and lifestyle management. A senior able to meet monthly debt obligations while still living a comfortable life, he said, might be better served managing debt than paying out their liquid assets en masse simply for the sake of avoiding debt.
And debt types matter — student loans, car loans and mortgage loans tend to be lower interest and not of great concern when held by seniors, but higher interest unsecured debt like credit card loans and personal loans carry significantly higher interest rates that can eat up a lot of retiree cash. Generally, debt held by people in their 60s and 70s trends toward the lower risk, with mortgage and car loans leading the pack, and credit card debt coming in third.
Still, according to research jointly conducted by the University of Idaho, Indiana University Maurer School of Law, University of Illinois College of Law and University of California-Irvine School of Law, about one out of every seven bankruptcy filings is coming in from someone over the age of 65 — representing a massive five-fold spike over the last 25 years.
That increase, according to the researchers, is somewhat explained by an aging American population of about 10,000 baby boomers hitting retirement age per day. But, according to the researchers, baby boomers aging into their golden years doesn’t explain an “exponential” growth pattern showing up in the data. In fact, according to the researchers the spike in older people only explains a “small portion” of the data.
A finding that indicates that while debt may not be a problem for all seniors, it is problem for an increasing proportion of them. A problem that itself has no easy or obvious solutions.