The aging of America bespeaks many medical triumphs but poses a host of difficult problems. Although in many ways it is a spectacular blessing that U.S. life expectancy at birth has risen from 47 to 78 years since 1900, and research has projected that babies born in recent years will live past 100, the downsides of an aging nation have been frequently pointed out: millions of Americans requiring expensive later-life care; the enormous fiscal problems caused by rising Social Security and Medicare costs; the effects of a stagnant or declining working-age population on economic growth and living standards; and the burdens facing adult children and grandchildren caring for very elderly parents, grandparents and great-grandparents.
Add to this a disturbing new trend — rising debt among elderly Americans. Not too long ago, in general, the older we got, the more financially secure we were, thanks to Social Security, employer-provided pensions and a healthy savings rate buoyed by a strong economy.
Household debt for the typical American over 65 doubled between 2000 and 2011, according to the U.S. Census Bureau. Credit-card debt for those over 75 more than doubled since the great recession began, while the percentage of Americans over 75 with mortgage debt shot up from 10 percent in 1992 to 24 percent in 2010, according to the Employee Benefits Research Institute. Shockingly, even federal student debt for older Americans — presumably decades out of college — has increased six-fold since 2005, according to the Government Accountability Office.
This troubling picture looks even worse when data show that 44 percent of the 26 million households over 65 are in debt and 46 percent of America’s elderly die with almost no financial assets, according to a study by economists James Poterba of MIT, Steven Venti of Dartmouth College, and David A. Wise of Harvard University. Although Social Security and Medicare have been huge successes in reducing poverty and health insecurity among the elderly, these budget-busting programs are projected to grow from about $820 billion and $265 billion a year, respectively, to $1.315 trillion and $536 billion by 2022. Nearly half of older Americans rely almost entirely on Social Security, and virtually all benefit from Medicare, yet budget experts on both sides of the aisle agree that these federal entitlement programs either need to be cut or taxes to pay for them need to be sharply increased.
The senior debt crisis, which has grown rapidly in very recent years, is part and parcel of a larger debt and savings crisis that threatens at least 140 million Americans and the overall economic health of our nation. Forty-four percent of the population is either in debt or only has enough money saved to pay for up to three months of modest expenses, and 31 percent of adults say they have no savings or pensions to afford to retire.
Although the causes are complex, two loom large: First is the growing divide between the wealthy, whose incomes have grown spectacularly in recent years, and most Americans, whose incomes have stagnated or declined in real terms since 2000. Too many people are paid too little to make ends meet, much less save. Second, despite weak calls for Americans to save, the calls to spend are much louder and more enticing. Raising wages and boosting incomes through policies such as the Earned Income Tax Credit are one answer, but for the tens of millions of indebted Americans who are nominally in the middle class, the answer is cultural and behavioral.
Saving and the broader notion of “thrift” were once bedrock American values. A changed economy — one that is much more unequal and one that is much more consumption-obsessed — has tossed such ideas under the bus. But, aside from making prosperity more broadly based — what John Kennedy called “a rising tide that lifts all boats”— there are things that we can do to encourage savings.
Financial literacy, already taught in many schools, can be more aggressively promoted. We could crack down on predatory payday lenders, who charge exorbitant interest but are the only access to loans for more than half of Americans who have subprime credit scores.
The idea of automatic IRAs would serve small-business employees, who would automatically save unless they chose to opt out and could benefit 80 million workers who don’t have workplace-based pension plans. Individual development accounts have been proposed to help build savings among low-income adults, and participants would receive up to a three-to-one match if they saved for an approved purpose such as a down payment on a house, paying college tuition or starting a business. The existing government Saver Credit, which provides a tax credit for moderate-income Americans’ contributions to an IRA or 401(k), could be expanded.
Another idea is to create children’s savings accounts, which would be seeded by an initial government investment for each baby born into low- and middle-income families, with additional amounts added later during childhood as long as families also contributed. A similar idea has been put forth in the bipartisan American Dream Accounts Act, introduced by Senators Chris Coons (D-Del.) and Marco Rubio (R-Fla.).
The debt crisis among the elderly is a ticking time bomb, but we have tools to defuse it. And it’s one of the rare issues that both Republicans and Democrats agree needs to be tackled.
Andrew L. Yarrow is a historian, a former New York Times reporter and an author. His new book is “Thrift: The History of an American Cultural Movement.”