American
seniors rack up debt
like never before, need credit counseling
Once
known for their thrift, older Americans are piling on debt — filing for
bankruptcy in record numbers and jeopardizing retirement dreams. Many live
on little more than Social Security. A sluggish stock market and painfully
low interest rates pinch returns on their CDs, bank accounts and stock
investments. Tapped out, many in this new generation of seniors turn to
credit cards to finance medical bills, expensive prescription drugs and
comfortable lifestyles.
Dee
Rogers, 64, says she and husband Michael, 57, ran up about $63,000 in
credit card bills — "just like a couple of spoiled kids." Now
seeking help from a credit-counseling agency, she says, "We'll get
by, but we'll both have to work until we're dried-up raisins."
That
isn't the way most people would like to envision their golden years. But
debt problems are only likely to become worse as the population ages,
bankruptcy experts say. Unlike their parents, Americans retiring now are
comfortable with credit cards and debt. They are more likely to use
plastic to make up for declining income from savings and investments.
As a
result, household debt for those 65 and older is skyrocketing — up 164%
on average in eight years, to $20,302 in 2000, according to SRI Consulting
Business Intelligence. That compares with a 92% increase for those younger
than 65.
One
national non-profit credit-counseling agency says more seniors are seeking
help with ever-more-burdensome debt loads — about $30,000 on average,
nearly double the average client's debt.
Most
older Americans with debt problems are not spendthrifts, though. Medical
emergencies, a major home repair or loans to children or grandchildren
often are what push them over the edge.
"Older
people tend to be used to living within their income until some crisis
happens," says Tiff Worley, president of Auriton Solutions, a
non-profit debt-counseling agency. Because many seniors own a home and
have good credit records, they have a higher capacity for debt than
younger people. That means debt problems can quickly mushroom.
The
push into bankruptcy
Although
older Americans account for a small proportion of total personal
bankruptcy filings, they are the fastest-growing group in bankruptcy.
About 82,000 Americans 65 or older filed for bankruptcy in 2001, up 244%
from 1991, according to the Consumer Bankruptcy Project, a study done at
Harvard.
After
$10,000 in credit card debt began to overwhelm her, Jennie Giannone, 72,
finally filed for bankruptcy in March.
The
retiree in Peabody, Mass., lives on $900 a month in Social Security and
some extra cash she makes taking care of an elderly woman. "I can't
take the pressure of the bills," she says.
Nearly
half of the elderly people who end up in bankruptcy say that they filed
because of a medical reason, the Harvard study found.
After
four surgeries within three years, Duane Allen, 68, and his wife, Linda,
had racked up about $15,000 in medical bills. Unable to pay them outright,
they charged them. Soon, they were treading water and sought help from a
debt-counseling center.
As
Duane Allen puts it: "We had health and medical problems and put the
bills on our credit cards. Pretty soon, it got the best of us." The
Allens not only sought help from credit counselors, but they sold their
home and bought a less-expensive mobile home in Yucaipa, Calif. "I'm
old enough to know better," he says. "Once you get involved with
credit cards, they've got you."
It
doesn't always take a medical emergency to precipitate a debt crisis.
Out-of-pocket
health care expenses for seniors increased nearly 50% from 1999 to 2001,
according to a report by the Commonwealth Fund. The costs are likely to go
up as more employers eliminate retiree health benefits, which typically
provide supplemental drug coverage.
At
the same time, many managed care companies are cutting prescription
coverage from Medigap policies. That forces many elderly Americans to go
without medications or pay for them with a credit card.
"Before
you know it, they have a large amount of debt," says Sandra Vickery,
director of the Bourne Council on Aging in Bourne, Mass.
The
desire to help family members also can trigger financial problems. Seniors
"often need someone to tell them that they can't continue to send
their son money every month," Worley says.
Even
worse, some family members take advantage of elderly grandparents, aunts
or uncles. "There are a lot of people who exploit the elderly,"
says Valerie Egzibher, executive director of Legal Services for the
Elderly in Charlotte. "They get power of attorney and clean out the
elderly person's bank accounts."
For
other seniors, loneliness and boredom can cause them to seek solace in
gambling, sometimes sending them spiraling into debt. Five years ago, the
Council on Compulsive Gambling of New Jersey set up a senior outreach
program because it found that about 10% of its callers were people 55 and
older who had gambling problems.
Ed
Looney, the council's executive director, says one 72-year-old woman told
him that she had lost $300,000 on card games and slot machines since 1980.
"It's a sad state of affairs when someone works all their lives and
then what they worked so hard for is gone," he says.
Although
there is the perception that many older Americans are affluent, 44% of
retirees say Social Security was their primary source of income this year,
up from 38% in 2000, according to an annual survey by the Employee Benefit
Research Institute.
Unplanned
expenses
When
seniors live on a fixed income, it's tough to juggle an unexpected
expenditure. Stella Barreras, 70, of Cottonwood, Ariz., says her problems
started when she needed to dig a deeper well on her property. The $1,500
bill had to be paid upfront, and that depleted most of her cash reserve.
As a
result, Barreras and her husband, Fabian, who live on a modest income, had
trouble keeping up with other bills. They had to wait until they received
their checks from Social Security before they could make credit card
payments.
"We
would get paid on the third of the month, but if the credit card bill had
a different due date, then we were late," she says. Soon, late fees
and penalty interest rates caused their credit card balance to balloon to
about $27,000.
Senior
citizens with credit card debt used to be an exception. In 1992, 18.6% of
Americans older than 65 had an outstanding balance on a credit card,
according to SRI Consulting Business Intelligence. By 2000, that had
jumped to 46%.
"There
has been a sea change in the fiscal conduct of seniors," says Leonard
Raymond, executive director of Homeowner Options for Massachusetts Elders
(HOME), a non-profit housing assistance group based in Boston. "When
we started the program 18 years ago, credit cards were a non-issue. Today,
our clients have an average credit card debt of $8,000. But we also see
people with $30,000, $40,000, $60,000. One client had $202,000 in credit
card debt."
Home-equity
loans and second mortgages also are on the rise among elderly Americans.
"A lot of seniors are house-poor," Vickery says. Their homes
have appreciated in value, in many cases causing property taxes to become
a large financial burden.
These
older homeowners are frequently targeted by creditors who try to sell them
a home-equity loan. "Property tax information is public,"
Raymond says. "It's easy to look up who's behind on their taxes and
offer them a loan." It becomes a problem when a predatory lender
persuades them to take out a high-interest loan that exceeds their income.
For
many senior citizens, their only major asset is their home. It becomes a
de facto pension, says John Pottow, a bankruptcy expert and recently
appointed law professor at the University of Michigan. That's a problem if
they file for bankruptcy. Although pensions are a protected asset, in most
states only a small amount of home equity is protected in bankruptcy. So
if the value of the equity exceeds the state exemption, then a person who
files for Chapter 7 bankruptcy will lose their home.
Seniors
don't know their rights
Older
Americans often compound their debt problems. Many are too embarrassed or
too proud to seek help when financial problems arise. "We know that
15% of all senior homeowners eligible for property tax relief in
Massachusetts don't take advantage of it," Raymond says. "It's a
matter or pride, privacy, confusion or they just don't know about the
program."
Seniors
are often not savvy about credit and don't know their rights when they are
contacted by creditors or bill collectors. They become nervous when bill
collectors start badgering them. "We've found that any call from a
bill collector will incapacitate them for two hours after the call,"
Worley says.
Though
debt problems among the elderly are rising, bankruptcy is usually a last
resort. "Elders do other things to avoid bankruptcy," Vickery
says. They may take out a loan or go to a food pantry in an effort to get
by, she says.
To
help out, Bourne has set aside areas on Cape Cod where senior citizens can
go shell fishing to supplement their food budget with oysters and clams.
In
the end, debt problems take an emotional toll, not just a financial toll,
on older Americans who often suffer in silence. "They don't sleep at
night," Egzibher says. "Some cry all the time. They don't tell
their families. They say they can't bear to ask for charity."