STATEMENT: A New Reality for Older Americans: Retiring in the Red

Release Date: 
February 18, 2004

NEW YORK — Over the last decade, high interest rate debt among America's seniors has skyrocketed, making them the fastest growing age group headed into bankruptcy court, according to a new report, "Retiring in the Red: The Growth of Debt Among Older Americans," released today from Demos, a non-partisan, public policy group based in New York City.

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 Demos, 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 Demos 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.

View the full report, "Retiring in the Red: The Growth of Debt Among Older Americans" by Tamara Draut and Heather C. McGhee.

Demos is a national, nonpartisan, nonprofit public policy organization based in New York City.

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