HappySeniorHomeOwners Blog

Senior debt is climbing while inflation accelerates. Is there a way out?

1. by Shannon Hicks, April 15, 2024

Older Americans are caught in the toxic mix of inflation and increasing debt

Americans have more debt than ever before which is especially dangerous for older Americans living on a fixed income. Today individual debt levels and credit delinquencies are approach pre-recession levels similar to those seen before the Great Financial Crisis and Recession of 2008. Relief in the form of lower interest rates is increasingly unlikely as the March Consumer Price Index (CPI) report shows the rate of persistent (not transitory) inflation is accelerating. The Federal Reserve still has a long way to go before they feel compelled to cut interest rates- that is unless the economy slips into a recession. 

Today we will examine the economic headwinds that have resulted in higher rates and increasing pressure on Americans- especially seniors.

Inflation and higher interest rates are a toxic mix that is pushing more Americans into financial jeopardy as many purchase increasingly expensive everyday purchases on credit. 

March’s inflation report released last week came in at its highest level since December. The annual rate of inflation grew to 3.5% in March- well above the central bank’s target of 2 percent. This may lead Federal Reserve Governors to grab their erasers for any planned rate cuts later this year or even consider increasing the Fed Funds Rate.

“If we continue to see inflation moving sideways, it would make me question whether we needed to do those rate cuts at all,” said Minneapolis Federal Reserve Bank President Neel Kashkari. 

Earlier this month Federal Reserve Governor Michelle Bowman told attendees at the Shadow Open Market Committee in New York, “While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse”.

Presently, these hawkish viewpoints are in the minority but that could change. In his letter to shareholders,  JPMorgan Chase CEO Jamie Dimon the bank should prepare for rates as high as eight percent or even more. Dimon notes the government’s deficit spending is is effect acting as an economic stimulus- a policy that undermines the Fed’s efforts to curb inflation.

So how are American’s coping with today’s higher prices? It’s likely with their credit cards.Federal Reserve Data shows that delinquency rates for consumer debt are climbing fast approaching the levels seen in the years leading up to the 2008 recession. Does this mean we’re on the cusp of a recession? Not necessarily but the correlation is interesting. What is certain is if interest rates are increased delinquency rates would worsen.

When it comes to debt held by Americans aged 65-75 MarketWatch reports the following averages for 2022. The average mortgage balance was $175,670, installment loans 28,690, car loans $23,690, and an average credit card balance of $7,720. Those numbers are likely even higher today and will continue to trend upward. Case and point.

The pre-tax income for Americans between the ages of 65-74 only increased 4.6% from 2019-2022 while inflation increased by 13% during the same period. Overall credit card balances have surged 47% over the last three years and nearly half or 46% report they are carrying credit card debt over month-to-month. All which points to the increasing pressure older Americans living on a fixed income in retirement are facing.