Running Up Debt to Death

I worked at a bank when I was a young adult. One day an older woman came in and spoke with our branch's customer service representative. The woman, who had been a widow for a little more than a year, was embarrassed and confused about a series of expensive bounced check charges.

The bank rep carefully went over the charges and showed where the customer had exceeded her checking account balance on a number of occasions. None of this made sense to the woman. She explained that her husband had always handled the finances and that they had never bounced a check before.

After much kindly and painstaking work, our rep succeeded in helping the customer understand how little money she had in her account. "How can I have no money left in my account?" the woman asked. "I still have checks in my book!" she exclaimed.

I initially thought this situation to be humorous. But the more I thought about it, the sadder it seemed. This lady had been tossed into a financial world in which she had no basis. Moreover, her ability to comprehend her situation may have diminished due to normal aging processes.

Over my lifetime I have watched as people have become increasingly comfortable with debt. The manager at my bank branch said that they once had a sign in the window that said, "Come in and get a loan to pay off all your debts." This was commonly understood as a joke for many years. But eventually people actually did start coming in and asking about such loans, so they ended up taking the sign down. Now debt consolidation loans are big business. (This article cautions about common scams targeting those seeking such loans.)

Not only have younger generations become lax about debt, increasing numbers of people are entering retirement with debt—even student loans! (See Business Insider article) I was surprised a few years ago to hear from a friend that works in the home mortgage industry of the hefty increase in the number of retirees and people within a few years of retirement getting large 30-year mortgages on new homes.

This Washington Post article discusses steadily decreasing financial retirement preparedness among Americans. Financial planners advise retiring with the ability to replace 70% of your pre-retirement income to maintain your standard of living. But the typical baby boomer will be able to enter retirement with only 60% and the typical Gen-Xer will start retirement with only 50%.

Those are huge differences that cannot be easily offset. One of the major factors involved is increasing debt load (see WSJ article). Home values and investment performance also play major roles. As explained in my 3/20 post, the current Federal Reserve policy of extremely low interest rates is killing senior investors' traditional investment returns and causing them to opt for more risky instruments that will eventually rob them of much of the value they think they are now earning.

While there is no shortage of those that assume they can safely cross the bridge of retirement funding when they get there, many Americans can read the writing on the wall. It is increasingly common for those that have crossed the traditional line of retirement age to work longer. Younger generations expect to work even longer. They are planning for a shorter retirement to ensure a stable standard of living.

This isn't necessarily a bad way to go, as long as your health holds out. Health issues that reduce or eliminate employment opportunities necessarily impact retirement cash flow. For that matter, so does anything that reduces employ-ability, including skill obsolescence.

As noted above, the trend is toward decreasing retirement preparation. Our culture seems bent on enjoying perks today at the expense of how we will be able to live in retirement.

Lest you console yourself with how well prepared you are, it might be well to consider how your neighbors' preparedness (or lack thereof) can impact you. Has it not been obvious of late how easily politicians can use envy to develop public policies designed to relieve those that have prudently prepared from their 'excess' savings? If you have prepared you will soon be maligned as being a rich hoarder.

So don't tell yourself that this isn't your problem. The question is how to go about dealing with it.