- Older Americans are feeling the burn of inflation.
- That's mainly because their share of credit card debt has been growing in recent years.
- Since the Federal Reserve is raising interest rates to fight inflation, it's getting more expensive to be in debt.
It's getting more pricey for older Americans to take out loans.
That's because last month, the Federal Reserve implemented its first interest rate hike of the pandemic in order to fight inflation, ending a two-year period of near-zero interest rates. Rate increases are expected to last throughout the rest of 2022 at the very least, and car loans, mortgages, and credit car payments are already experiencing a surge.
Older borrowers, in particular, are in a position to feel the financial pinch, a new survey by the Senior Citizens League says. 43% of older households carry credit card debt, and 49% of 3,028 survey respondents reported that they have spent all of their emergency savings or have no savings at all, as of February. Older households carrying credit card debt can face "debilitating financial consequences" as interest rates increase, the researchers say.
The share of US credit card debt owed by people over 70-years-old has been growing in recent years; it's nearly doubled since 2010 when it was about 4.4%, at 8.6% now. People over 70 owe $380 billion collectively in credit card debt, more than three times greater than they did in 2010, when they owed $110 billion.
"Credit card debt in retirement can quickly get out of hand, and this is especially true during periods when interest rates climb," Mary Johnson, Social Security, and Medicare policy analyst for the Senior Citizens League, said in a statement.
That's especially hard for senior citizens, who are often on a fixed income — more than 40% of older Americans rely exclusively on Social Security for income, according to a 2020 study by the National Institute on Retirement Security. Even though retirees have received the highest Social Security cost of living adjustment (COLA) in 40 years, inflation rapidly outpaced the annual increase.
"We are in a steeply inflationary period when rising interest rates will mean many consumers will need to reduce the amount of debt that they are carrying on credit cards month to month in order to keep that cost manageable," Johnson said.
And that's as credit card debt overall has seen record surges amid historic levels of inflation. Credit card balances hit $860 billion in February, up $52 billion from the fourth quarter of 2021. That's the largest quarterly increase the Fed has seen in the 22 years it's been collecting data. The recent acceleration in debt is likely due to the fastest inflation in decades, the Fed says.