Old Americans With Debt

8/20/2019 Old Americans With Debt

1/18

Federal Reserve Bank of New York

Research and Statistics Group, Microeconomic Studies

February 12, 2016

The Graying of American DebtMeta Brown

The views presented here are those of the authors and do not necessarily reflect those of the

Federal Reserve Bank of New York, or the Federal Reserve System


2/18

2

The Graying of American DebtAge distribution of aggregate U.S. consumer debt, 2003 v. 2015

0

50

100

150

200

250

300

350

20 25 30 35 40 45 50 55 60 65 70 75 80

Age

2015 2003

Billions of 2015 USD

In real terms, debt in the hands of Americans aged 50 to 80 has increased by59% since 2003.

Age 39:aggregate debtfell by 12%

Age 67:aggregate debtgrew by 169%

Source: New York Fed Consumer Credit Panel / Equifax


3/18

3

Substantial shift in aggregate debt toward older borrowers relevant to

Credit-driven consumer goods markets, but also

Loan performance. The payments on the loans represented in thisfigure are being made by substantially older borrowers now thanwe’ve seen in the past.

Next: how much of this shift in the age distribution of household debtis attributable to simple population aging?

Relevance and sources of the shift to older ages


4/18

4

Population Aging or Changing Behavior?Percentage change in aggregate debt by age, 2003 to 2015

Per capita debt at age 30 fell by 12%; per capita debt at age 65 grew by 48%.

Source: New York Fed Consumer Credit Panel / Equifax, Census Bureau

-30%

20%

70%

120%

170%

20 25 30 35 40 45 50 55 60 65 70

Age

Changing behavior Population aging Total

Percent


5/18

5

As the number of Americans both reaching older ages and entering

adulthood climbs, We expect greater aggregate debt balances in the hands of both

older and younger borrowers.

Owing to changing borrower and lender behavior, however,

We find substantial evidence of increased debt among olderborrowers,

And yet no evidence of increased debt among the young.

Next we turn to specific consumer credit markets In which markets are young consumers reducing their

participation?

Which types of debt are older consumers increasingly carrying intoretirement?

Population Aging or Changing Behavior?


6/18

6

Loan Types Over the Lifecycle: Home-secured debtMortgage + home equity debt balance per U.S. resident


0

10

20

30

40

50

60

20 25 30 35 40 45 50 55 60 65 70

Age

2003 2015

Thousands of 2015 USD


7/18

7

Loan Types Over the Lifecycle: Non-housing debtAuto, credit card, and student loan balance per U.S. resident


0

2000

4000

6000

8000

10000

12000

20 25 30 35 40 45 50 55 60 65 70

Age

2003 Auto 2015 Auto

2015 USD


8/18

8



0

2000

4000

6000

8000

10000

12000

20 25 30 35 40 45 50 55 60 65 70

Age

2003 Credit card 2015 Credit card

2015 USD


9/18

9



0

2000

4000

6000

8000

10000

12000

20 25 30 35 40 45 50 55 60 65 70

Age

2015 Student loan 2015 Credit card 2015 Auto

2003 Student loan 2003 Credit card 2003 Auto

2015 USD


10/18

10

2003-2015 change in real per capita debt by type

Debt type Age 30 $ Age 30 % Age 65 $ Age 65 %

Home-secured -$8,195 -28% +$11,191 +47%

Credit card -$1,121 -36% -$11 0%

Auto loan -$292 -6% +$1,102 +29%

Student loan +$6,912 +174% +$857 +886%



11/18

11

An acceleration and then slowdown of lending across the board will

lead loans, and their associated borrowers, to be older on average. Credit boom that characterized the mid-2000s

Stark change in underwriting standards from 2009 forward

And/or new loan originations could increasingly favor older over

younger borrowers.

Turn to originations data for evidence

Has the number of new credit originations shifted downward since2003?

Have new loan originations tilted away from younger borrowers,and toward older borrowers, since 2003?

How did we get here?


12/18

12

Auto Loan Originations Per U.S. Resident, 2003 v. 2015


-

0.05

0.10

0.15

0.20

0.25

0.30

20 25 30 35 40 45 50 55 60 65 70 75

Age

2003 2015

Originations Per Capita


13/18

13

Mortgage Originations Per U.S. Resident, 2004 v. 2015


0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

20 25 30 35 40 45 50 55 60 65 70 75 80

Age

2004* 2015

Originations Per Capita

*Given unusual refinancing activity in 2003, here we use 2004 as our basis for comparison.Results using 2003 are qualitatively similar.


14/18

14

An acceleration and then slowdown of mortgage lending appears to

be the more important factor in the aging of U.S. mortgages &mortgage holders.

Both auto and mortgage originations show some evidence of a tiltaway from younger borrowers, and toward older borrowers, between

2003-4 and 2015. But this change is substantially stronger in the autoloan market.

Next we consider one possible source of the recent tilt of neworiginations toward older borrowers.

Why the shift of debt from younger to older ages?


15/18

15

Median Equifax Credit Score by Age, 2003-2015Data for six decennial* birth cohorts

Source: New York Fed Consumer Credit Panel / Equifax

550

600

650

700

750

800

850

20 25 30 35 40 45 50 55 60 65 70 75

Age

1985 1980 1970 1960 1950 1940

Credit Score


16/18

16

The tilting of new credit toward older borrowers may be an

unsurprising consequence of credit tightening

…when one considers the close relationship between credit riskscore and age.

Many repayment measures drawn from the CCP reflect a similarlyclose association between age and creditworthiness.

Further, the ballooning of student debt may have substantial effectson young borrowers’

Ability to originate new loans

Willingness to originate new loans

Why the shift of new credit from younger to older ages?


17/18

17

Likely greater resilience of outstanding consumer loans

Reallocation of debt from young, with historically weak repayment,to retirement-aged consumers, with historically strong repayment.

Retirement-aged consumers’ repayment has shown little sign of

developing weakness as their balances have grown.

SCF: Net worth of households with heads age 65+ is very similarin 2013 and 2004-2007, indicating that their increased debt isbalanced by increased assets.

In light of 2013-2015 debt and housing market changes, thecurrent picture may look brighter still.

Implications


18/18

18

More muted borrowing among younger (23-39yo) consumers

What balances we observe for this group are increasingly held instudent debt.

Consequences in terms of both foregone economic growth and young

consumers’ welfare

SCF again: 45-54 and 55-64-year-old households’ balance sheetsshow less evidence of healing between the 2004-2007 and 2013waves. We believe this pattern merits ongoing scrutiny, though self-

reported household asset values may update with a lag. And,importantly, their debts have increased less than those of retirement-aged consumers since 2003.

Caveats

Old Americans With Debt

Documents

Transcript of Old Americans With Debt