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New York Fed Finds Large Increase in Debts Held by Those Over Age 50

02/12/2016 | 10:16am US/Eastern
By Josh Zumbrun 

Americans in their 50s, 60s and 70s are carrying unprecedented amounts of debt, a shift that reflects both the aging of the baby boomer generation and their greater likelihood of retaining mortgage, auto and student debt at much later ages than previous generations.

The average 65-year-old borrower has 47% more mortgage debt and 29% more auto debt than 65-year-olds had in 2003, according to data from the Federal Reserve Bank of New York released Friday.

Just over a decade ago, student debt was unheard of among 65-year-olds. Today it is a growing debt category, though it remains smaller for them than autos, credit cards and mortgages. On top of that, there are far more people in this age group than a decade ago.

The result: U.S. household debt is vastly different than it was before the financial crisis, when many younger households had taken on large debts they could no longer afford when the bottom fell out of the economy.

The shift represents a "reallocation of debt from young [people], with historically weak repayment, to retirement-aged consumers, with historically strong repayment," according to New York Fed economist Meta Brown in a presentation of the findings.

Older borrowers have historically been less likely to default on loans and have typically been successful at shrinking their debt balances. But greater borrowing among this age group could become alarming if evidence mounted that large numbers of people were entering retirement with debts they couldn't manage. So far, that doesn't appear to be the case. Most of the households with debt also have higher credit scores and more assets than in the past.

"Retirement-aged consumers' repayment has shown little sign of developing weakness as their balances have grown," according to Ms. Brown.

The data were released in conjunction with the New York Fed's quarterly report on household debt, that aggregates millions of credit reports from the credit-rating agency Equifax. The report was launched in 2010 to track the changing debt behaviors of U.S. households after the financial crisis.

For the last two years, household debts have been slowly rising, although they remain well below where they were in 2008. That trend continued in the final quarter of 2015, with overall household indebtedness rising by $51 billion to $12.1 trillion. Auto loans, student loans and credit card balances all increased while mortgage balances were little changed.

An important barometer of household financial health is the percentage of this debt that is in some stage of delinquency, and that percentage has been steadily dropping. Only 2.2% of mortgage debt was in delinquency, the lowest since early 2007. Credit card delinquencies also declined, while auto loan and student loan delinquencies were unchanged.

"The household sector looks much better positioned today than in 2008 to absorb shocks and continue to contribute to the economic expansion," said New York Fed President William Dudley in prepared remarks.

Part of the yearslong improvement in credit delinquencies owes to the fact that older borrowers hold a growing share of the debt. Not only were borrowers with the best financial situation able to maintain their debt during the financial crisis, they have had an easier time taking on new debts in recent years as credit standards have tightened.

By contrast, the overall debt balances of most young borrowers haven't grown or have declined. The average 30-year-old borrower has nearly three times as much student debt as in 2003. But these borrowers have so much less home, credit card and auto debt that their overall debt balances are lower.

This shift for young borrowers could have "consequences in terms of both foregone economic growth and young consumers' welfare," said Ms. Brown.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

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