Golden Years
Seniors Are Saying, 'Put On The Plastic'
Debt: As their expenses rise and savings dwindle, Americans over 65 are racking up crushing charges
Wednesday, March 17, 2004
Eileen Ambrose
Sun-Sentinel
By the late 1990s, the Elkridge couple, who survive on Social Security, did what millions do when short on cash - they pulled out the credit cards. They made monthly payments, but the leftover balance with interest climbed to about $14,400 in a few years.
Cecil White, a 77-year-old former truck driver, says the credit cards have been life savers. "If we hadn't had them, we would have to do without medication," he said. "And I don't know if we would be here."
For many older Americans, retirement isn't so much golden as it is plastic. As housing and health care costs rise while savings and retirement benefits dwindle, seniors are using credit cards to keep up with medical bills or everyday living expenses.
Nearly one-third of cardholders over age 65 carry debt on their cards, a statistic that hasn't budged much over the past decade, according to Federal Reserve data. But the amount of indebtedness has soared.
The average credit card debt reported by those over age 65 in 2001 was $4,041, an 89 percent increase from 1992, a recent analysis of Fed data by Demos, a New York public policy group, showed.
More startling is the rise in debt among the newly retired, ages 65 to 69, whose card balances averaged $5,844, a 217 percent increase over the decade, stated a Demos report, Retiring in the Red. The study adjusted the Fed numbers for inflation.
"People are already having trouble making ends meet as they switch from leaving the labor force and are entering retirement," said Tamara Draut, co-author of the report.
Retirees with annual incomes of $50,000 or more are in better financial shape than a decade ago, and have reduced their debt load, Demos found.
But the majority of seniors have incomes under $50,000. And in this group, those that carry card balances have increased their debt burden significantly, Demos said. Roughly one in five with card balances are in "debt hardship," where more than 40 percent of their income goes to debt repayments, including mortgages.
Credit cards have been a source of support for Patricia Whiteman of Forestville after a back injury caused her to quit a data-processing job in the mid-1980s. The 71-year-old racked up about $15,000 in card debt and last year entered a debt repayment program offered by a nonprofit credit counselor. She pays $400 a month, about one-quarter of her income from Social Security and a pension, toward reducing card balances.
Demos' findings are in line with those by the Consumer Bankruptcy Project, which reported that the fastest rate of bankruptcy growth in 2001 was among those 65 and older.
Less security
"Life hasn't become as secure for employees in their 50s and 60s as it used to be," said Jay L. Westbrook, a law professor at the University of Texas who works on the bankruptcy project. "We had an early wave of layoffs. We had early retirement where you take it or leave it, and often it's not a very generous package."
Also, unions today often face the tough choice of protecting jobs and benefits of current workers or cutting benefits for retirees, Westbrook said.
Traditionally, this older generation has been a model of thriftiness, debt aversion and saving. Many experts say those traits are still common. Unlike the generations that follow them and are willing to whip out plastic for even minor purchases, seniors who grew up paying with cash tend to resort to card debt in emergencies, experts said.
For most, the emergency is a medical problem.
That's the case with Ann Fleig of Lakeland, Fla. The 73-year-old's husband suffered from diabetes, osteoporosis and emphysema during the last years of his life. The Fleigs found themselves putting their share of the doctors, hospital and drug bills on credit cards.
The out-of-pocket cost for one medication was $154 a month, said Fleig.
"We were making the payments," said Fleig, an executive secretary for a local Girl Scout Council. "We went without other things. Cut back on groceries a little bit. Turned down the air conditioner so it wouldn't run very much. We didn't go anywhere."
Four years ago, as the balances on their 10 cards reached more than $40,000, the Fleigs enrolled in a credit counselor's debt program. Some of the debt was forgiven after her husband's death a year later. Fleig, who had been working part-time, returned to a full-time shift, paid off four credit cards and expects to erase the balance on the last card this year.
A job loss also frequently derails older workers' finances and retirement plans, experts said.
Dollie Hawkins of Miami retired in her late 60s after the medical clinic where she worked as a clerk closed its doors in 1988. At her age, she said, she couldn't find another job. With no pension, her Social Security checks weren't enough to keep up with living expenses, she said.
"I was trying to pay my bills ... the best I could. I had this MasterCard, and I had to use it," the 84-year-old widow said. "When I looked up, it was over $10,000."
Her interest rate rose to nearly 25 percent. "The interest would eat me up," she said. " ... I couldn't sleep at night."
Last year, Hawkins sought help from a nonprofit credit counseling group, which got her interest rate reduced to 1 percent.
Afraid to ask children
Seniors in financial straits often say they wouldn't think of asking their children for help. Some consider finances too private; others say they don't want to burden children, who are struggling to raise their families.
Sometimes older parents don't divulge money problems out of fear that a child will step in and try to limit their independence, experts said.
More frequently, though, children and grandchildren are the source of seniors' money woes, experts said. Sometimes parents find themselves still supporting middle-aged children or end up raising their grandchildren, experts said.
"We see so many times, the elderly person will let their child or grandchild take cash advances on their credit card, whether for a small business or a down payment on a car," said April Lewis-Parks, education coordinator for Consolidated Credit Counseling Services in Fort Lauderdale. The money is never repaid, she said.
'Tough love' needed
Trish Lynch, a counselor with Credit Counselors of America in Virginia, said older parents need encouragement to practice "tough love" with their children. Lynch is working with a retired couple in their 60s who have about $45,000 in debt, largely from supporting an unemployed 40-year-old son and his two children. Lynch told the couple it's time to insist their son find a job.
"A lot of times, they need the validation to know it's OK to say that and not feel like a bad parent," she said.
Even when buried in bills, seniors are reluctant to wipe out their debts through bankruptcy.
"There is an especially strong stigma of bankruptcy among that age group. It's not just a financial bankruptcy but a moral bankruptcy if they take that step," said Gerri Detweiler, founder of DebtConsolidationRx.com in Florida.
The number of bankruptcies filed in 2001 by those 65 and older reached 82,207, more than three times the number a decade earlier. Still, that's less than 6 percent of the 1.45 million personal bankruptcies filed that year.
Deborah Thorne, assistant professor of sociology and anthropology at the Ohio University, said older Americans often wait too long to file for bankruptcy.
"Many of them will die before this credit card debt is paid off, unless they win the lottery or interest rates come down," said Thorne.
For the Whites of Elkridge, bankruptcy is unthinkable.
"No way. We like to pay our bills," said Mary White, 80.
The Whites had little savings when poor health forced them to quit working. Mary White held a variety of jobs and never qualified for a pension. Cecil White said his retirement benefits disappeared after his employer went bankrupt in 1973, the year before federal legislation was enacted that protects pensions.
As their card debt mounted, Cecil White told his apartment manager that he might be forced to give up eating because he couldn't keep up with groceries on top of rent and medication. She put the Whites in touch with Howard County's Office on Aging.
Now they are in a Medicaid waiver program that pays their prescription drug costs, and they receive Meals-on-Wheels. Together, they receive about $1,800 a month in Social Security, with a large chunk of that going toward rent and insurance. But they have managed to whittle their card debt down to about $9,300.
Cecil White said they were surviving well, although it's "a mind-bothering thing" to accept the help. "I never expected other people to take care of me," he said.
Suggested solutions
Demos, the policy group, suggests a range of fixes:
- A national usury cap that would limit card interest rates.
- An end to severe late penalties that can cause a card's interest rate to jump to 29 percent or more.
- Defeat of proposed bankruptcy legislation that would make it more difficult for consumers to file.
But Fritz Elmendorf, a spokesman for the Consumer Bankers Association, said such steps could lead to restricting credit to consumers who need it.
The real problem, Elmendorf said, is that "people are not saving and preparing for retirement."
The debt woes of older Americans won't easily be cured, experts agreed.
"It's only going to get worse, especially as baby boomers start to retire," Draut said. That generation is the first to delay having children, and now they are paying college tuition later in life instead of saving for retirement, she said.
Others suggest that financial problems for some seniors might be eased in 2006 when Medicare's prescription drug coverage kicks in.
In the meantime, older Americans continue to struggle.
Without a credit card, seniors have a choice. "Take your medicine or eat your dinner," said Fleig, the Florida secretary. "It's too bad the world has gotten to where you can't live with both."
