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Older Adult Debt and Financial Frailty

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  • Annamaria Lusardi

    (The George Washington University School of Business)

  • Olivia S. Mitchell

    (The Wharton School, University of Pennsylvania)

Abstract

Of particular interest in the present economic environment is whether access to credit is changing peoples’ indebtedness over time, particularly as they approach retirement. This project analyzes older individuals’ debt, debt management practices, and financial fragility using data from the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS). Specifically, we examine three different cohorts (individuals age 56–61) in different time periods, 1992, 2002 and 2008, in the HRS to evaluate cross-cohort changes in debt over time. We also draw on recent data from the National Financial Capability Study (NFCS) which provides detailed information on how families manage their debt. Our goal is to assess how wealth and debt among older persons has evolved over time, along with the potential consequences for retirement security. We find that more recent cohorts have taken on more debt and face more financial insecurity, mostly due to having purchased more expensive homes with smaller down payments. In addition, Baby Boomers are more likely to have engaged in expensive borrowing practices. Factors associated with better debt outcomes include having higher income, more education, and greater financial literacy; those associated with financial fragility include having more children and experiencing unexpected large income declines. Thus, shocks do play a role in the accumulation of debt close to retirement. But it is not enough to have resources, people also need the capacity to manage those resources if they are to stay out of debt as they head into retirement.

Suggested Citation

  • Annamaria Lusardi & Olivia S. Mitchell, 2013. "Older Adult Debt and Financial Frailty," Working Papers wp291, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp291
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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp291.pdf
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    References listed on IDEAS

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    1. Barbara A. Butrica & Nadia S. Karamcheva, 2013. "Does Household Debt Influence the Labor Supply and Benefit Claiming Decisions of Older Americans?," Working Papers, Center for Retirement Research at Boston College wp2013-22, Center for Retirement Research.
    2. Annamaria Lusardi & Carlo de Bassa Scheresberg, 2013. "Financial Literacy and High-Cost Borrowing in the United States," NBER Working Papers 18969, National Bureau of Economic Research, Inc.
    3. Venti, Steven F. & Wise, David A., 1991. "Aging and the income value of housing wealth," Journal of Public Economics, Elsevier, vol. 44(3), pages 371-397, April.
    4. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
    5. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, June.
    6. Annamaria Lusardi, 2010. "Financial Capability in the United States: Consumer Decision-Making and the Role of Social Security," Working Papers wp226, University of Michigan, Michigan Retirement Research Center.
    7. Adeline Delavande & Susann Rohwedder & Robert Willis, 2008. "Preparation for Retirement, Financial Literacy and Cognitive Resources," Working Papers wp190, University of Michigan, Michigan Retirement Research Center.
    8. Annamaria Lusardi & Olivia S. Mitchell & Vilsa Curto, 2009. "Financial Literacy and Financial Sophistication Among Older Americans," NBER Working Papers 15469, National Bureau of Economic Research, Inc.
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