According to a disturbing article in the paywalled Financial Times, more and more older people are showing up in American bankruptcy courts than ever before.
The culprits are vanishing pensions, soaring healthcare costs and tens of thousands of dollars in unpaid student loans for themselves, their children and even their grandchildren.
Patti Waldmeir of the Financial Times points to a 2018 study, Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society, which crunched the numbers.
In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of healthcare, as they try to deal with reductions to their social safety net ... For an increasing number of older Americans, their golden years are fraught with economic risks, the result of which is often bankruptcy.
The study follows a shift from defined pensions and a relatively strong social safety net to the concept of "personal responsibility." The report goes on to explain that starting in the Reagan years,
Conservatives, free market advocates, and media promoted the image of older Americans as "a threat to economic viability" as thieves of our children's futures, and as "responsible for the nation's economic problems." In just a few decades, norms of privatized citizenship and individual responsibility upstaged the ideal of America's social welfare system. Financial risks were shunted off onto individuals, regardless of age. Many older Americans suffered greatly because of this movement toward "private responsibility," with their Social Security, retirement, and healthcare, among other protections, coming under attack.
The Financial System for Seniors
The system works for a lot of people, especially those with fat 401K plans, inheritances from their silent generation parents, and the right kind of real estate. They get to pay lower taxes now and will be just fine later.
But not everyone is so lucky. Waldmeir describes the large portion of the population who don't. "Seniors are living longer and paying ever higher medical costs for the privilege of staying alive; many have little or no company pension and scant personal savings to fall back on."
Many are also helping their kids, and even buying diapers for grandchildren, and have been unable to build up a nest egg.
The article starts off with the claims that health care costs are the biggest cause of bankruptcy, but actually doesn't follow through; most of the people in the story have racked up credit card debt over the years through buying basic necessities, then getting new credit cards and maxing them out as well. It's not a problem that would be solved by "Canadian style" universal health care either; Americans over 65 have Medicare giving them basic health insurance, but they still go bankrupt because they've lost their jobs, whether because of illness or disability. Some simply got into debt the old-fashioned way, by spending more than they earn. Canadians go bankrupt because of health issues, too; According to a study published in International Journal of Health Services,
Universal health insurance affords Canadians protection against ruinous doctor and hospital bills. Inadequate coverage for prescription drugs and dental care, however, leaves some with unaffordable out-of-pocket costs. In addition, illness is a frequent indirect cause of bankruptcy through loss of work-related income.
Writing in The Washington Post, Megan McArdle makes the same point, that when people get sick they have a lot more to worry about than just medical bills.
On a personal level, it means that Americans need to plan around potential illnesses by rethinking their debt load. We’d all be much less vulnerable if we kept our debt payments down to a level that would be manageable on a reduced income, instead of buying as much car and home as we can afford.
The number of older people going bankrupt is skyrocketing. (Photo: Deborah Thorne et al/Graying of U.S. Bankruptcy report)
Projecting the Future
We haven't even addressed demographics here. The fact remains that the social safety net is not getting any stronger, and the population is getting older, with 10,000 more baby boomers surpassing 65 years old every day. Since 1991, the number of people over 65 declaring bankruptcy is up almost 500%, and the number over 75 years old is up almost 1,000% percent. In a few years they'll need to add an 85+ line on the table. By 2029, when all 70 million baby boomers are over 65, those bankruptcy courts are going to be very busy, and a lot of people are going to be wondering how they missed that "private responsibility" thing.