Household debt over the life cycle
Saturday, January 1 2005
Abstract
Using data from the 2001 Survey of Consumer Finances, this study examines how the holding of types and amounts of household debt changes over the life cycle. The results show that the likelihood of holding each type of debt and the amount of each type of debt compared to total assets decrease with age. Although the popular press has speculated that older households accumulate excessive amounts of mortgage debt and credit card balances, our results do not support this claim. However, there is evidence that it may be more difficult for poorer older households to pay off their credit card balances. 2005 Academy of Financial Services. All rights reserved.
JEL classification: D12; D14; D91
Keywords: Household debt; Life cycle; Financial assets; Non-financial assets; Credit card balances
I. Introduction
Alarming stories of older Americans who are going deeper into debt have been featured in the popular press (Breckenridge & McGregor, 2003; Marmon, 2003). Unlike the elders of previous generations, today's seniors have been characterized as carrying high credit card balances and accumulating mortgage debt. Moreover, the data on U.S. family finances support this claim. According to the Survey of Consumer Finances (SCF), the proportion of older households holding installment debt and credit card balances increased from 4.2 and 11.2% to 9.5 and 18.4%, respectively, between 1998 and 2001 (Aizcorbe, Kennickell & Moore, 2003). Also, the increased problem with late debt payments for older households suggests that the debt holders among this group face credit-related financial problems. The percentage of older households with any debt payment 60 days or more past due has increased since 1995, while the percentage did not vary much for other age groups (Aizcorbe et al., 2003). Despite these observations, there has been little study of the relationship between the age of the household head and the amount and types of debt that the household holds.
