(Mid-America Pension Rights Project): Older Households’ Financial Fragility

Via the Schwartz Center for Economic Policy Analysis

By Owen Davis

Most U.S. households got an unexpected financial boost during the pandemic, a result of both reduced consumer spending and robust stimulus programs. Yet as government spending programs have lapsed and high inflation has persisted, those financial cushions have deflated. Economists at JPMorgan Chase now expect aggregate “excess savings” to be depleted by mid-2023—a position that many lower-income households likely already occupy.

As documented in the Older Workers and Retirement Chartbook, a joint project of the Economic Policy Institute (EPI) and the Schwartz Center for Economic Policy Analysis (SCEPA), millions of older households experience financial fragility, including more than half of lower-income older households headed by an adult ages 55 to 64 years old.

We define financial fragility across four dimensions: a lack of ready cash to supplement lost income, risky levels of mortgage debt, excessive non-housing debt (including credit card debt, auto loans, and student loans), and rent burdens (see the chartbook for technical definitions).

Across all the dimensions, fragility reflects households’ potential inability to stay above water in the face of adverse shocks such as job loss or sudden illness. While it is self-evident how low liquid assets in the form of cash and bank account balances contribute to fragility, debts and rent burdens add an additional layer of risk to household balance sheets. Families going through hard times may be able to cut back on discretionary spending to some degree, but they have fewer options for cutting back on rent payments or debt obligations. It follows that lower-income households, which already spend less on discretionary items, face heightened vulnerability.

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