'Greatest Generation' In Debt
Most of us assume that our parents know how to handle their finances, so it may be surprising to hear that a growing number of seniors are in debt.
If you are struggling financially, or suspect that your parents may be, there are ways you can improve the situation.
Vera Gibbons, special correspondent for Kiplinger's Personal Finance magazine, stopped by The Early Show to explain signs of a parent that may be in financial trouble and offer suggestions on how you can help.
Who would ever guess that the country's senior citizens are slowly drowning in debt? The "Greatest Generation" is known for its thrift, but 53.8 percent of senior households carry some debt. And half of those households are over $20,000 in debt. This is up 164 percent since 1992, according to SRI Consulting Business Intelligence.
Gibbons says it's not that seniors are living extravagantly, but that their expenses are rising at double-digit rates.
In the past year, seniors saw drug costs rise 17 percent, medical insurance rise 15 to 25 percent, property taxes rise 10 to 20 percent and homeowner's insurance rise 13 percent. To make matters worse, historically low interest rates have led to painfully low returns on CDs, money market accounts and other conservative investments that seniors depend on for income.
Gibbons says retirees are turning to credit cards in order to cover their rising costs. Retirees aged 55 to 64 average $6,900 in credit-card debt, according to Myvesta, a nonprofit financial-counseling organization. Americans over 65 aren't in as much debt, but at least half carry a debt of $2,000 or more.
As a result, a growing number of seniors are filing for bankruptcy. While they remain the smallest group of filers, they are the fastest-growing group. Gibbons says by the time seniors get to bankruptcy court, they tend to be much deeper in debt than the average filer, with nearly $28,000 in credit card debt alone.
Hopefully, you can help your parents get their finances in order before they need to file for bankruptcy. But, Gibbons warns, don't expect them to come to you for help. Few people like to think about, admit or discuss that they have financial troubles. This generation in particular finds it embarrassing to be in this situation. And of course, most people don't want to "burden" their children with their problems.
Myvesta.org says 95 percent of its older clients who have money issues admit that they have not mentioned the problem to their children.
Bringing up this subject can be equally embarrassing for grown children, Gibbons says. No matter who broaches the topic, you can expect it to be uncomfortable. Most families, however, spend time together over the holidays, so Gibbons recommends taking the opportunity to have a financial conversation with your parents in the next few weeks.
Legally, the only way you're going to find out if your parents are strapped financially is if they tell you. You cannot request copies of their bank statements, credit card bills and other financial information without their permission. Once you have their permission, you can receive duplicate account statements. If you are concerned about your parents' financial status, this may be something you want to consider doing.
But if your parents are already in trouble, simply seeing their credit card bills or dwindling bank account won't help much. Luckily, there are some other ways to help.
Discuss the problem: As mentioned above, this is the first -- and perhaps most difficult -- step in getting your parents back on the financial straight and narrow.
Find low-rate credit cards: Chances are, Gibbons says, your parents don't have a low-rate card. They probably have the same cards they've had for years and don't realize how many more options are available. Go to bankrate.com and hunt for a card with the lowest possible interest rate. This can save them thousands when paying off credit card debt.
Ask about property tax relief: Local and state governments realize that rising property taxes are really hurting seniors, and many now offer tax breaks. These programs come in all shapes and sizes, depending on where you live and how much money you have. An AARP survey found that less than one in five seniors eligible for relief apply. Most just don't know that these programs exist. Gibbons says to head to your local city hall to find out if you or your parents are eligible.
Consider a reverse mortgage: Older homeowners living on fixed incomes, in homes which have appreciated enormously in value, are literally "house rich, but cash poor." They can take advantage of their biggest asset by receiving a "reverse mortgage." If your parents apply for a reverse mortgage, they can receive a monthly or lump sum payment from a lender. Basically, they are borrowing against the equity in their home. The more money the homeowner borrows, the less equity left in the home. This is a loan against a home that does not have to be paid off until the occupant dies or moves, or the house is sold. The amount of the loan depends on the homeowner's age and the home's value. The loan is repaid, with interest, with money from the home's sale.
Seek professional help: If you feel that your parents' situation is too big for your family to handle alone, you can enlist the help of a financial planner or credit counseling agency. Gibbons says the National Foundation for Credit Counseling can help you find an accredited counselor.
A lot of seniors are wondering how or if the new Medicare prescription drug bill is going to help them. The bill doesn't take effect until 2006. At that time, low-income seniors and very ill seniors will receive a deep discount on their prescription costs. Starting in the summer of 2004, Medicare participants can buy a discount card (cost: around $30) that will allow them to receive 10 to 25 percent off the price of most retail medications.
Although you can't technically "inherit" your parents' debts (Your assets won't be seized to pay for them.), you can help them control their debts. Once your parents die, their estates can be tapped to pay the debts.
If nothing else, Gibbons says she hopes the revelation about seniors and debt serves as a warning to baby boomers and others nearing retirement. People are living longer and the price of living is only going up. It's essential to start saving more money for your golden years, and learn to manage it well.