NEW YORK-A new study shows Americans age 50 and older carry more credit card debt than younger people.
The finding, CU execs and analysts say, points to the need to direct more lending and financial education efforts toward older members, and take some precautions at the same time.
According to a 2012 study by Demos on behalf of AARP, households age 50 and older had an average credit card balance of $8,278 compared with an average debt of $6,258 for households under age 50-a reversal of findings from a 2008 survey conducted by Demos, a multi-issue national think tank.
"It caught us by surprise," said Amy Traub, senior policy analyst and study author, attributing the change largely to the economy. She cited unemployment as well as underemployment, and older adults paying for financial hardships of other family members, especially children. The report showed that older Americans were twice as likely as those under age 50 to take on credit card debt to assist others.
The study, titled "In the Red: Older Americans and Credit Card Debt," was conducted February-March 2012, covering 997 households carrying card debt for three months or more. It also showed:
* A third of older households used credit cards to pay for basic living expenses such as rent, mortgage payments, groceries or utilities.
* Half of Americans age 50 and older carried medical expenses on their credit cards, with prescription drugs and dental expenses the main contributors.
* Nearly one in five (18%) older Americans nearing retirement said they dipped into retirement funds to pay down credit card debt.
What The Findings Mean
Traub said the findings indicate that financial institutions should closely examine the lending and financial assistance products they offer older Americans. "They can't make the assumption that just because someone is age 50 to 70 they have achieved financial security."
Noting that numerous studies also show the majority of Baby Boomers are not prepared financially for retirement, Keith Reynolds, community president, CEFCU West, San Jose, Calif., agrees that credit unions need to pay more attention to the needs of older borrowers, which means lending products and financial advice.
"There is a real opportunity here to reach out to older members with retirement planning services, hopefully far enough out to still make a difference. These members have been with the credit union a long time and trust us. They should be receptive to our messages," said Reynolds.
Reynolds sees an opportunity not only to help older members but to boost lending, as well, proceeding with caution. "Objectively, these are probably your best borrowers. They have been with you a long time, tend to have very good FICO scores and debt-to-income ratios. They will probably continue to look like that until the time they quit working-but that's when things can change on a dime. We have a lot of members who work at Caterpillar and a fair number retire only to find out they quit working a little too soon based on the income they have. They are great borrowers until the reach that realization."
Reynolds advised beefing up analytics to monitor for rapid changes in the lending portfolio from this segment of borrowers.
At the $370-million CitizensFirst CU in Oshkosh, Wis., CEO Kevin Ralofsky said his organization has noticed older members carrying more credit card debt. He recommended offering this group financial education services, loosening credit standards slightly for them due to their length of membership and debt-to-income ratios, and promoting term loans to help break the debt cycle.
Demos Findings Not A Surprise
Ent FCU in Colorado Springs, Colo., could not offer an opinion based on its own experience, since the $3.8-billion CU sold its credit card portfolio years ago. But EVP/chief lending officer Bill Vogeney is not surprised by the latest Demos study. "A large portion of people at age 50 have less than $10,000 in retirement assets, a study shows. Also, I think people are reaching retirement age with higher debt levels due to their home mortgages, and there is a trickle down impact on credit card usage."
From a risk standpoint, the CUNA lending Council chair is uncertain what to make of the trend. "My sense is that the typical underwriter may look at a borrower over 50, see a fair share of debt, and give them for lack of a better term a free pass-they may overlook a high level of debt because of the overall stability of the borrower. That being said, I haven't seen any kind of alarms going off in our lending portfolio that would lead me to believe that credit unions need to change their underwriting."
In Harrisburg, Penn., Greg Smith, CEO of Pennsylvania State Employees CU, is seeing members below the age of 50 continue to carry more credit card debt than those 50 and older. The $4-billion credit union has seen a slow but steady increase in the gap between the average card balances of these two age groups looking at data from 2010-2012.
Explaining The Difference
"My only explanation for our difference here, from what the Demos study found, would be that we run a VISA balance transfer program at 2.9% (0% transfer fee) that attracts a lot of attention. Could it be that young members with balances use it more than the older members?"
Bill Hardekopf, CEO of Lowcards.com, Birmingham, Ala., summed up what the Demos study implies about all borrowers. "It highlights how tough a time we are all having in this economy. There are so many people over 50 who are losing their jobs or getting cut back, and when this happens, they have a very tough time paying the bills, especially if an unforeseen medical expense pops up."
