Contradictory Personal Finance News

There are two new reports that provide insight as to who’s raking up more credit card debt. Unfortunately, it appears the two reports contradict the others – or do they? Keep reading as we explore both.

The Studies

Earlier this week, new research from AARP Public Policy Institute’s Middle Class Security Project suggests low and middle-income Americans under the age 50 were carrying more on their credit cards these days. It says this is happening because more older Americans are using credit cards to cover medical, prescription and household needs. It reports, on average, folks older than 50 are carrying balances of $8,278, compared to $6,258 for their younger counterparts.

Meanwhile, another study conducted by Ohio State University says consumers in their late 20s and early 30s are carrying more debt than older consumers. The study also shows that these younger adults are paying it back on a slower basis and they’re more likely to die in credit card debt if they don’t rein in their spending habits. So why the conflicting evidence?

Actually, they’re using different criteria. The Ohio State University study looks at the differences over specific periods of time in our lives, versus the current conditions focused on age groups as they are today. It states, that “people born between 1980 and 1984 have on average $5,689 more debt than their parents had at the same stage of their lives, and $8,156 more than their grandparents. Keep reading as we bump the information together to see how it all looks once it’s been analyzed.

Comparing Facts

Taking the information gleaned from both reports, today’s older American consumers are struggling with credit card debt probably for the first time in their lives; after all, when they were their childrens’ ages, if we’re to believe the results from the one survey, they were carrying far less debt. In other words, when they were in their 20s and 30s, they were better disciplined to resist the material things than their adult children and adult grandchildren are unable to do today. These days, credit is easier to get, too. Priorities were different and educational opportunities were different as well.

And here’s another realization: by the time these younger adults reach the age of their parents and grandparents, they too will have more credit card debt based on irresponsible spending habits in their earlier years. Today’s older generation is carrying more credit card debt because they’re forced to if they’re to ensure they have enough life saving medication or groceries in the cabinets. This begs the question: what if the economy is in a similar hold as it is today and because of irresponsible financial habits in their younger years, tomorrow’s older generations will find it even harder to cover their expenses?

If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,

said Lucia Dunn, a co-author of the study and a professor of economics at Ohio State University. She also added,

Our projections are that the typical credit card holder among younger Americans who keep a balance will die still owning money on their cards.

A New Truth

Here’s where it really gets interesting, though. In the Ohio University study, the researchers compared people in different age groups, but who had similar educations, comparable incomes and the same marital statuses. What they discovered was that the payoff rate of younger credit card holders was 24 percentage points lower than their parents, and a whopping 77 points lower than their grandparents’ rates.

So will today’s 20- and 30- somethings carrying credit card debt throughout the entirety of their lives? It appears so. Remember, too, these younger adults may not be considering that their parents and grandparents are living off of credit cards as well; what happens when Grandma can no longer charge her medications and then learns her kids can’t help because of their own credit card debt? This is exactly what’s asked in this report,

If our findings persist, we may be faced with a financial crisis among elderly people who can’t pay off their credit cards.

Jeopardizing Retirement

But there’s another dynamic that must be considered from yet another new report. One in four Americans is raiding their meager retirement savings to pay their monthly bills, according to a new study. Americans are borrowing against their 401(k) to pay for non-retirement needs such as mortgages, credit card debt or college tuition. This study was released this week as well from the financial advisory firm HelloWallet. Wondering how much that equates to? How about more than $70 billion in annual withdrawals?

Worse, consumers who are turning to these options are realizing they can either borrow against their retirement or file bankruptcy. It’s little wonder, then, that more are opting to borrow now instead of wrecking their credit. But there are other hard to hear facts, too. Borrowing against one’s retirement account often comes with plenty of penalties, additional taxes and lost interest – making retirement goals that much harder to reach.

It’s remarkable how all of the research can vary so greatly and yet come up with the same conclusions. It gives weight to the facts revealed in these studies and should serve as a wake up call for every American. There’s no doubt this vicious cycle is brutally difficult to break from, but if we’re to ensure we can retire with a roof over our heads, necessary medications to keep us alive and food to nourish our bodies, something has to change and soon. Financial experts have generally always recommended an emergency fund equal to three months of our salary. Experts also advise that at age 35, we should have at least a year’s salary in our 401(k) or IRA. By age 45, we should have three years’ salary socked away and then, by the time we retire at age 67, we should have at least eight times our salary nicely tucked away.

What are your thoughts? Does these studies give you pause? Do you think you might be facing difficulties as you near retirement? Share your stories with us.

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