Seniors Have More Debt

Mar 18, 2016 by

According to a study done by the Federal Reserve Bank of New York, Americans as a whole have done well in cutting credit card debt since 2003. Surely the Great Recession which began in 2008 ratcheted up debt, making the progress compared to 2003 even more impressive!

CreditCards.com infographic: Average card balances by age 2003-2015

Seniors Racking Up More Credit Card Debt

As this infographic from CreditCards.com shows, while most Americans happily are cutting credit card debt, the one age cohort with more credit card debt in 2015 than 2003 are those over age 67. The average 75-year old is carrying about 25% ($500) more credit card debt in 2015 than 2003.

In contrast, today’s 50-year old has about $1,000 less in credit card debt than a 50-year old in 2003. On average, Americans aged 20-64 were carrying 25% less credit card debt in 2015 versus 2003.

Why Has Seniors’ Credit Card Debt Grown?

CreditCards.com’s explanations are, with respect, unconvincing and a bit impenetrable, I thought. I think a big part of the reason for the jump in seniors’ credit card debt may be obvious: Federal Reserve interest rate policy.

The Fed Is Killing Savers and Those Relying on Passive Income

The 2008-09 Wall Street-precipitated financial crisis prompted the Fed to slash interest rates effectively to nil. You’ve seen some of the results in your money market and bank account yields: you’re lucky to earn enough interest on your liquid savings to underwrite your Starbucks habit.

Many seniors are dependent in part on interest from their savings to pay living expenses. In 2007, a 1-year CD yielded around X%. Today the comparable rate is Y%. The Fed has given folks who rely on interest income a huge, nearly decade long, and ongoing pay cut.

Higher Expenses + Less Income = More Debt

While the Fed has been busy cutting savers’ income, living expenses have continued to rise, albeit modestly, overall. Especially for those with tightly balanced budgets, those two trends combined have an unavoidable impact: more debt, to pay living expenses and cover emergency costs after the emergency fund has been spent on groceries and electricity.

Have a look at “6 Ways Federal Reserve Policy Hurts Retirees” to learn more about how Fed policy has crushed those who’ve been diligent about saving enough cash for retirement.

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