Old Americans With Debt

The Graying of American Debt
Meta Brown
Federal Reserve Bank of New York
Research and Statistics Group, Microeconomic Studies
February 12, 2016
The views presented here are those of the authors and do not necessarily reflect those of the
Federal Reserve Bank of New York, or the Federal Reserve System
The Graying of American Debt

Age distribution of aggregate U.S. consumer debt, 2003 v. 2015
2015
2003
Billions of 2015 USD

350
Age 39:
aggregate debt
fell by 12%
300
250
Age 67:
aggregate debt
grew by 169%
200
150
100
50
0
20
25
30
35
40
45
50
55
60
65
70
75
80
Age
In real terms, debt in the hands of Americans aged 50 to 80 has increased by

59% since 2003.
Source: New York Fed Consumer Credit Panel / Equifax
Relevance and sources of the shift to older ages

Substantial shift in aggregate debt toward older borrowers relevant to
Credit-driven consumer goods markets, but also

Loan performance. The payments on the loans represented in this
figure are being made by substantially older borrowers now than
weve seen in the past.
Next: how much of this shift in the age distribution of household debt
is attributable to simple population aging?
Population Aging or Changing Behavior?

Percentage change in aggregate debt by age, 2003 to 2015
Changing behavior
Population aging
Total
Percent
170%
120%
70%
20%
20
25
30
35
40
45
50
55
60
65
70
-30%
Age
Per capita debt at age 30 fell by 12%; per capita debt at age 65 grew by 48%.
Source: New York Fed Consumer Credit Panel / Equifax, Census Bureau
Population Aging or Changing Behavior?

As the number of Americans both reaching older ages and entering
adulthood climbs,
We expect greater aggregate debt balances in the hands of both
older and younger borrowers.
Owing to changing borrower and lender behavior, however,
We find substantial evidence of increased debt among older
borrowers,
And yet no evidence of increased debt among the young.
Next we turn to specific consumer credit markets
In which markets are young consumers reducing their
participation?
Which types of debt are older consumers increasingly carrying into
retirement?
5
Loan Types Over the Lifecycle: Home-secured debt

Mortgage + home equity debt balance per U.S. resident
2003
2015
Thousands of 2015 USD

60
50
40
30
20
10
0
20
25
30
35
40
45
50
55
60
65
70
Age
Loan Types Over the Lifecycle: Non-housing debt

Auto, credit card, and student loan balance per U.S. resident
2003 Auto
2015 Auto
2015 USD
12000
10000
8000
6000
4000
2000
0
20
25
30
35
40
45
50
55
60
65
70
Age

2003 Credit card
2015 Credit card
2015 USD
12000
10000
8000
6000
4000
2000
0
20
25
30
35
40
45
50
55
60
65
70
Age

2015 Student loan
2003 Student loan
2015 Credit card

2003 Credit card
2015 Auto
2003 Auto
2015 USD
12000
10000
8000
6000
4000
2000
0
20
25
30
35
40
45
50
55
60
65
70
Age
2003-2015 change in real per capita debt by type
Debt type
Age 30 $
Age 30 %
Age 65 $
Age 65 %
Home-secured
-$8,195
-28%
+$11,191
+47%
Credit card
-$1,121
-36%
-$11
0%
-$292
-6%
+$1,102
+29%
+$6,912
+174%
+$857
+886%
Auto loan
Student loan
10
How did we get here?

An acceleration and then slowdown of lending across the board will
lead loans, and their associated borrowers, to be older on average.
Credit boom that characterized the mid-2000s
Stark change in underwriting standards from 2009 forward
And/or new loan originations could increasingly favor older over
younger borrowers.
Turn to originations data for evidence
Has the number of new credit originations shifted downward since
2003?
Have new loan originations tilted away from younger borrowers,
and toward older borrowers, since 2003?
11
Auto Loan Originations Per U.S. Resident, 2003 v. 2015

2003
2015
Originations Per Capita

0.30
0.25
0.20
0.15
0.10
0.05
20
25
30
35
40
45
50
55
60
65
70
75
Age
12
Mortgage Originations Per U.S. Resident, 2004 v. 2015

2004*
2015
Originations Per Capita

0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
20
25
30
35
40
45
50
55
60
65
70
75
80
Age
*Given unusual refinancing activity in 2003, here we use 2004 as our basis for comparison.
Results using 2003 are qualitatively similar.
13
Why the shift of debt from younger to older ages?

An acceleration and then slowdown of mortgage lending appears to
be the more important factor in the aging of U.S. mortgages &
mortgage holders.
Both auto and mortgage originations show some evidence of a tilt
away from younger borrowers, and toward older borrowers, between
2003-4 and 2015. But this change is substantially stronger in the auto
loan market.
Next we consider one possible source of the recent tilt of new
originations toward older borrowers.
14
Median Equifax Credit Score by Age, 2003-2015

Data for six decennial* birth cohorts
1985
1980
1970
1960
1950
1940
Credit Score
850
800
750
700
650
600
550
20
25
30
35
40
45
50
55
60
65
70
75
Age
Source: New York Fed Consumer Credit Panel / Equifax
15
Why the shift of new credit from younger to older ages?

The tilting of new credit toward older borrowers may be an
unsurprising consequence of credit tightening
when one considers the close relationship between credit risk
score and age.
Many repayment measures drawn from the CCP reflect a similarly
close association between age and creditworthiness.
Further, the ballooning of student debt may have substantial effects

on young borrowers
Ability to originate new loans
Willingness to originate new loans
16
Implications
Likely greater resilience of outstanding consumer loans
Reallocation of debt from young, with historically weak repayment,

to retirement-aged consumers, with historically strong repayment.
Retirement-aged consumers repayment has shown little sign of
developing weakness as their balances have grown.
SCF: Net worth of households with heads age 65+ is very similar
in 2013 and 2004-2007, indicating that their increased debt is
balanced by increased assets.
In light of 2013-2015 debt and housing market changes, the
current picture may look brighter still.
17
Caveats
More muted borrowing among younger (23-39yo) consumers
What balances we observe for this group are increasingly held in

student debt.
Consequences in terms of both foregone economic growth and young
consumers welfare
SCF again: 45-54 and 55-64-year-old households balance sheets
show less evidence of healing between the 2004-2007 and 2013
waves. We believe this pattern merits ongoing scrutiny, though selfreported household asset values may update with a lag. And,
importantly, their debts have increased less than those of retirementaged consumers since 2003.
18

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The Graying of American Debt

The Graying of American Debt

Billions of 2015 USD

In real terms, debt in the hands of Americans aged 50 to 80 has increased by

Relevance and sources of the shift to older ages

Credit-driven consumer goods markets, but also

Population Aging or Changing Behavior?

Population Aging or Changing Behavior?

Loan Types Over the Lifecycle: Home-secured debt

Thousands of 2015 USD

Loan Types Over the Lifecycle: Non-housing debt

Loan Types Over the Lifecycle: Non-housing debt

2015 Credit card

Loan Types Over the Lifecycle: Non-housing debt

2015 Credit card

2003-2015 change in real per capita debt by type

How did we get here?

Auto Loan Originations Per U.S. Resident, 2003 v. 2015

Originations Per Capita

Mortgage Originations Per U.S. Resident, 2004 v. 2015

Originations Per Capita

Why the shift of debt from younger to older ages?

Median Equifax Credit Score by Age, 2003-2015

Source: New York Fed Consumer Credit Panel / Equifax

Why the shift of new credit from younger to older ages?

Further, the ballooning of student debt may have substantial effects

Reallocation of debt from young, with historically weak repayment,

What balances we observe for this group are increasingly held in

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