By Craig Erwin, Ph.D.
The U.S. has plenty of crises. A pandemic has made life difficult and dangerous. Medical expenses also terrorize us, as the leading cause of bankruptcy in the U.S. But what really scares me is that tens of millions of Americans at or near retirement age have no savings and the amount of debt many seniors carry keeps jumping. It is not uncommon for Americans to retire with substantial mortgage debt, credit card debt, auto loan debt, and even student loan debt, all of which make retirement far more challenging; especially if one has no savings. To make matters worse, most retirees live on a fixed income, which makes it nearly impossible to pay down a mortgage or any kind of debt.
The Federal Reserve Bank says that between 1999 and 2019 the total debt burden rose 471% for those in their 60’s and 543% for those over 70. As a result, seniors between the ages of 56 and 74 average $96,984 in debt and seniors 75 and older average $40,925 in debt. Although it would be challenging for a young person with a good job to manage that much debt; for retirees on a fixed income, it might be nearly impossible.
When I attended the University of Minnesota in the late 70s and early 80’s, government educational assistance was common and college costs were much lower. It was common for college graduates to have little or no debt. Today it is rare for college students to graduate debt-free and it is almost a rite of passage to pile up debt of five figures. Now it is even common for graduates to have debt of six figures.
It takes 21 plus years for the average American to pay off the student loan debt they rack up earning their Bachelor’s degree. And making student loan payments forces many to delay the purchase of a home. This hurts because buying homes tends to be the primary way that most Americans accumulate wealth. And the longer a home purchase is delayed, the greater the likelihood that the owner will still have substantial mortgage debt when she reaches retirement age. Thus, as more students graduate with substantial debt, more will also reach retirement age with a large mortgage.
There are no easy answers to the debt crisis facing both young people and seniors. Total student loan debt is currently between 1.5 and 2 trillion dollars. There are a variety of proposals being floated in Congress to forgive a substantial portion of this debt. A portion of the debt owed by seniors could be forgiven as well, although serious proposals on erasing senior debt have yet to be made.
The best way to address both student and senior debt is to better educate would-be borrowers in an effort to reduce the amount of debt they accumulate. Schools like my university may also be part of the solution. Since attending my university, a public liberal arts university, costs a fraction of what a private university costs, it’s quite possible for students to graduate debt-free. It would be quite difficult for students at my school to accumulate debt of six figures because costs are modest.
High schools could also do a much better job of improving student financial literacy. They could provide mandatory financial literacy courses and counsel students and parents to better analyze the costs of various higher education alternatives and the merits and shortcomings of various universities’ programs and financial aid offerings. High schools, colleges, and universities have a moral obligation to provide students with as much information as possible on the true cost of attending various colleges and universities.
For seniors, the local, state, and federal government must offer much better and more accessible financial literacy courses and ubiquitous public service announcements. Seniors must be taught the potentially severe consequences of borrowing money, and living and retiring with unsustainable amounts of debt.
Of course, some people will do stupid things no matter how hard governments and schools try to stop them. But, we must better educate people and provide better warnings. This is bound to benefit some individuals.
Some of my relatives have six figures of student loan debt. They are not stupid people, but, as college students, they were naive. If they had more clearly understood the alternatives, and the potential consequences of their actions, they might have made better decisions. But they weren’t armed with the information or tools to do so.
Click on the this link for more information on the pros and cons of home ownership and the risks of mortgage loan debt. https://womenretire.com/dont-bet-everything-on-your-house/
Click on the following link to learn how to avoid common financial problems. https://womenretire.com/some-people-will-always-have-more-money-than-sense/