Consumer Debt Among Older Adults in Rural Oklahoma

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1 Consumer Debt Among Older Adults in Rural Oklahoma Eileen St. Pierre, Ph.D., CFA, CFP Personal Finance Specialist Department of Human Development & Family Science College of Human Environmental Sciences Oklahoma State University Karina Shreffler, Ph.D. Assistant Professor Department of Human Development & Family Science College of Human Environmental Sciences Oklahoma State University This research is funded by the Donna Cadwalader Research and Development Grant from the Oklahoma Home and Community Education, Inc.

2 Statement of Need According to a 2008 survey of low- and middle-income households conducted by Demos, a non-partisan public policy research and advocacy organization, Americans age 65 and older are taking on more debt as they increasingly use credit cards to finance the necessary costs of living. From 2005 to 2008, there was a dramatic increase of 26% in the use of debt by Americans aged 65 and older, the largest increase of all the groups surveyed. Further, this age group reported the highest amount of credit card debt due to medical expenses. The two most cited reasons for using credit cards to pay for out-of-pocket medical expenses were for prescription drugs and dental expenses (Demos, 2009). The increase in the use of credit cards by this age group to finance basic living expenses is not surprising. The steep decline that occurred recently in the stock market as a result of the housing crisis has greatly reduced the value of their retirement portfolios, which have finally recovered to pre-crisis levels. For those older Americans who invested their retirement funds more conservatively, interest rates on bank certificates of deposit and money market funds have barely kept pace with inflation, let alone rising medical costs. The Social Security Administration announced that no cost of living adjustment will be made to Social Security benefits in 2011 and the increase forecasted for 2012 will be offset by a rise in Medicare premiums. With little (or negative) growth in their retirement accounts, older Americans have been forced to use other means to pay household bills and utilities. Members of this population group may be considered vulnerable consumers. Vulnerable consumers have difficulty in obtaining or assimilating information needed to make decisions regarding which goods or services, if any, to buy. They may also suffer a greater loss of welfare than other consumers from making an inappropriate buying decision (Burden, 1998; Braunsberger, Lucas, & Roach, 2004). This class of vulnerable consumers is growing. The U.S. Census Bureau has projected the population of Americans age 65 years and older to be 13% of the total population in 2010 and 19.7% of the total population in In Oklahoma, 13.8% of the projected 2010 population and 19.4% of the projected 2030 population are expected to be age 65 and older (U.S. Census, 2005). In 2007, the American Association of Retired Persons (AARP) commissioned a nationwide poll to assess financial literacy among people age 40 years and older. Half of the respondents failed the financial literacy quiz. If older Americans are increasingly using credit cards to finance their basic expenses, it is important to assess their level of financial literacy, their attitudes and experiences using credit, and outcomes associated with increased debt. As reported in Chien and DeVaney (2001), if consumers believe that using credit for specific items is appropriate, this could increase the likelihood that they will carry a larger balance on their credit cards. They may be unable to change their behavior until they have changed their attitude towards using credit cards.

3 Description of Project Project Goals This study is unique in that it proposes to assess the financial literacy of rural Oklahomans age 65 and older, their current use of and attitudes towards using credit cards and other types of consumer debt, and the consequences of increased debt for this population. There is currently no information available on older Oklahomans debt attitudes, behaviors, and/or consequences. Since those living in more rural communities likely have less access to financial education as those living in more urban settings, the study will focus on reaching older Oklahomans in rural counties. This assessment is necessary in order to develop and deliver a targeted financial education curriculum to this segment of the population in Oklahoma. The long-term goal of this research is to improve financial literacy among Oklahomans age 65 and older so that they can become more informed consumers and understand the risk/return tradeoff of using consumer debt. The overall objective is to develop a personal financial education curriculum specifically targeted to this segment of the population that addresses gaps related to financial literacy as identified in our assessment. Project Objectives To assess the financial literacy of Oklahomans age 65 and older living in rural counties, To determine their current level of consumer debt, including credit card, installment loan, etc. as well as their attitudes and values regarding debt, To understand consequences of debt pressures for individual and family well-being, To utilize findings to develop financial education curriculum that address gaps in financial literacy as well as specific risks related to increased debt, and To disseminate the project outcomes to policy/program makers statewide and nationally in an effort to promote financial resilience among older adults. Procedure Men and women age 65 and older from rural counties in Oklahoma were recruited to participate in the project by Family and Consumer Sciences (FCS) county educators in the Oklahoma Cooperative Extension Service (OCES) and local Oklahoma Home Community Education (OHCE) chapter members. The goal was to have 100 people participate in the study. Oklahoma counties with estimated 2008 populations under 15,000 were considered for the study, for a total of up to 33 counties. An in-depth questionnaire was developed and administered at designated locations in each chosen county. The questionnaire consisted of five parts: (1) a financial literacy quiz (2) questions regarding participants current level of debt, type of debt, and recent changes in debt load (3) questions regarding debt pressures and participants perceptions of how debt affects their families (4) general questions about participants psychosocial well-being (5) demographic information. Each participant was given $20 for his/her participation in the study. The appropriate IRB approval was obtained.

4 Survey Sample 106 survey participants Average age was 76 Age ranged from 65 to 96 80% White, 13% Native American 74% female 45% married, 42% widowed Survey collection period: September 2010 to January 2011 Highest education level 17% no high school diploma 39% high school diploma 30% some college 14% college degree Financial Literacy Quiz 12 of 14 questions based on the Jump$tart Coalition s 2008 Personal Financial Literacy Survey Among College and High School Students Overall mean score was 62% Most understood the concepts of: Inflation 76% Compounding of interest 61% Health insurance deductible 76% Ability to perform a simple savings calculation 59% Understood the concept of liquidity 54% Understood the concept of investment growth* 50% 27% confused growth with interest payments Correctly identified types of auto insurance* 51% Respondents displayed strong credit knowledge: Knew they could receive a free annual credit report 76% Understood the type of help provided by CCCS 79% Understood the risk faced by credit card companies 76% Understood how much access lenders have to their credit history 69% Understood the concept of finance charges 62% *Scored better than high school and college students

5 Debt Usage and Pressures Major credit cards 11% 25% 17% 44% or more Non-major credit cards None (53%) One (22%) Two (14%) Three or more (10%) Why do you carry more than one card? For everyday purchases (21%) Build good credit (10%) To save money (7%) Because they were offered to me (5%) Over half of participants reported having a credit limit below $10,000; most (71%) owe less than $10,000 on their credit cards and 37% reported a $0 balance. The overwhelming majority pay off their balance each month (71%), while only 1% make just the minimum payment. Two-thirds of participants never use their credit cards for medical and dental expenses, while only 13% use them for these expenses on a regular basis. Almost half (46%) never use their credit cards for essentials, like food and gas. But almost a third (32%) do use them for essentials on a regular basis. The vast majority of participants (88%) own their own home. Most (78%) have no monthly housing expense. Of those who do, their monthly expenses ranged from $25 to $1,400 the average being $ Only 1 participant had taken out a home equity line of credit (HELOC) in the past 3 years. A small number (4%) had never heard of a HELOC. No participant had taken out a reverse mortgage in the past 3 years, but one is reported to be considering one on the future. Only 5% of participants had never heard of a reverse mortgage. Overall, the older Oklahomans surveyed are not currently experiencing financial distress Over the past year, 82% of participants have not missed a payment and 77% have never made a late payment in the past year. When asked how their level of debt has changed over the past 3 years, 24% reported an increase, 22% reported a decrease, and 40% saw no change in debt levels Over the past 12 months, only 8% felt they did not have enough money left over at the end of each month. Most (76%) felt they were the same or better off this year than they were 3 years ago and were satisfied or very satisfied with their current financial situation. Only 15% felt they could not cut back on expenses if they had to. The vast majority seldom or never argue with family members over finances (87%) and feel little to no stress (91%) over their financial situation. When asked about the amount of debt they are currently paying off gradually: The level of credit card debt ranged from $0 (74% of respondents) to $26,000. The amount of money still owed on mortgages ranged from $0 (82%) to $200,000. Only two participants owed money on a HELOC ($50,000 and $165,000).

6 General Well-Being The majority of older Oklahomans surveyed are happy, healthy, satisfied with life, and enjoy strong social support Most of the participants reported they were satisfied or very satisfied with their marriages (97%), relationships with other family members (82%), and life in general (85%). When asked questions about the level of social support they receive, most strongly agreed with the following statements: I get the emotional help and support I need from my family (64%) I can count on my friends when things go wrong (64%) I can talk about my problems with my family (67%) I have friends with whom I can share my joys and sorrows (73%) My family is willing to help me make decisions (62%) Approximately 43% met the criteria for mild depression, and 12% met the criteria for severe depression. Significant Associations Between Finances and Well-Being We found positive outcomes for those with greater financial literacy Those with higher financial literacy were more likely to feel that they could cut back if they needed to. People who felt like they could cut back if they needed to reported less stress and were more satisfied with their finances. We found negative outcomes for those who do not feel that they have enough money to make ends meet every month They are more likely to report missed or late payments for consumer debt items. They feel more stress, they are less satisfied in their marital relationship and other family relationships, they are less satisfied with finances and life, and they are less happy and more likely to be depressed. Overall, people with less financial stress reported more positive individual and family wellbeing outcomes People who thought that they would be able to afford expenses for the rest of their lives were more satisfied with their family relationships, had greater life satisfaction, were happier, and were less depressed. Conclusions Overall, the financial situations and psychosocial well-being for older adults in our study was quite positive, but those with financial pressures faced some negative outcomes. Increasing financial literacy and teaching basic budgeting have the potential to increase individuals wellbeing and their relationships with their family members.

7 Budget Breakdown Participant Incentives ($20 per survey) $2, Transportation Costs Oklahoma Council on Family Relations Conference Registration for project dissemination Printing of Final Report for the 2011 OHCE State Meeting Total Cost $3, References Braunsberger, K., Lucas, L., & Roach, D. (2004). The effectiveness of credit-card regulation for vulnerable consumers. Journal of Services Marketing, 18 (5), Burden, R. (1998). Vulnerable consumer groups: quantification and analysis. (Research Paper 15). Hayes, UK: Office of Fair Trad ing. Chien, Y., & Devaney, S. A. (2001). The effects of credit attitude and socioeconomic factors on credit card and installment debt. The Journal of Consumer Affairs, 35, Demos. (2009, July 28). The Plastic Safety Net. Retrieved February 1, 2010, from pubs/psn.pdf U.S. Census Bureau. (2005, April 21). Table 3: Interim Projections: Ranking of states by projected population age 65 and older: 2000, 2010, and Retrieved February 1, 2010, from population/www/projections/projectionsagesex.html