Over the last few years the increasing debt levels of young people have grabbed headlines and political attention. However the over-50s are now experiencing rising amounts of debt, even among people who have already retired.
Typically there has been an expectation of enjoying a comfortable standard of living in your fifties, after reaching a senior level in your career, paying off your mortgage and seeing your children fly the nest. With a focus on saving for retirement, the over-50s tend to carry less debt than people in their 30s and 40s.
Yet in 2013 the average borrower aged over 55 had 36% more unsecured debt than in 2011, and it seems that the historic aversion of this age group to debt is likely to decline, as more and more people who have become used to using credit cards regularly hit their fifties.
So are the over-50s the new indebted generation, and what’s caused this upswing in debt?
Inflation eats into over-50s incomes
Inflation is one of the biggest aspects contributing to the increasing indebtedness of the over fifties. Between 2010 and 2012 average monthly spending has increased by 9%, while the average monthly income went up by 7%.
However, this figure looks at all people over 55. When the increase in average monthly spend amongst the different age groups that make up this demographic are examined, it becomes clear that some are being hit harder than others. People aged 55 – 64 and over-75 saw their monthly spend increase by 13%.
Two of the items to have seen the biggest jumps are food and housing, with people in their fifties and older seeing their monthly food bill rise 12% and their housing costs go up by 9%. These increases alone add up to an average of £564 a year.
For people in this situation resorting to unsecured debt can be a way to avoid facing the drop in living standards that happens when inflation on outgoings outstrips income growth. Whereas for some people this might be a case of paying for dinner or holiday flights on a card, for others it might be using plastic or a payday loan to put food on the table towards the end of the month.
Self-employed much more vulnerable to debt
It’s probably not a big shock that some of the over-50s who are most likely to end up with problem debt are those who are unemployed, or that those who own their own home outright are less likely to be in debt than those who are still paying off their mortgage.
What might be surprising is that over-50s who are self-employed are twice as likely to have problem debt as those who are retired. Problem debt is defined in relation to the amount of income that must be paid to service the debts, ranging from 10% of income for the poorest households, to 25% for the richest.
According to the Office for National Statistics, almost 20% of workers between 50 and 64 are self-employed, and it seems that some people have resorted to self-employment after struggling to find full-time jobs. While self-employment has many perks, including the potential for flexibility and self-determination, it also carries with it a much higher risk of debt than being employed.
The effect of the ‘boomerang generation’
Children who are still dependent on their parents are another factor contributing to the financial squeeze on people in their fifties, according to Age UK. Young people have been particularly badly affected by the recession, and even with the recent downturn in youth unemployment, over 900,000 people between 18 and 24 were out of work in the last quarter of 2013.
Even for young people with jobs, rising housing costs and high levels of debt have contributed to a dramatic rise in the number of people under 34 who live at home with their parents.
For fifty and even sixty-something parents, this can result in an unexpected drain on their financial resources as they face increased living costs themselves, just at the point when they had expected to be able to put money aside for retirement.
What type of problems is this causing?
The most immediate problem is the consequences debt has on over fifties’ incomes and savings. For those below retirement age, money spent paying down debt detracts from their ability to build up a much-needed nest-egg for retirement.
For those who have already retired it can become increasingly difficult to clear credit cards, loans and even mortgages on a reduced income, especially if other unexpected expenses crop up.
The effects of debt spirals beyond the financial into the personal too. Couples in their fifties or older who have problem debts are more than twice as likely to divorce than other couples of the same age, even ones who have more manageable amounts of unsecured debt. Unfortunately, the sometimes disproportionate cost of divorce can just increase the financial burden.
Meanwhile, other research shows that older people who are in debt are eight times more likely to report mental health issues than their wealthier peers.
It remains to be seen whether this trend is going to decline as we move out of recession and back into prosperity, and what they long-term effects of this number of over-50s being in debt will be. This is especially true because the current generation of fifty-somethings are likely to work until much later than people a few decades older than them, yet are also facing smaller retirement pots.