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EBRI: Older Families Carry More Housing Debt

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NU Online News Service, April 29, 2004, 6:15 p.m. EDT – Total debt levels for older American families were about the same in 2001 as they were in 1992, but housing accounted for a greater share of their debt burden.[@@]

Researchers at the Employee Benefit Research Institute, Washington, base those conclusions on an analysis of Federal Reserve Bank data.

EBRI researchers found that the overall debt ratio for American families headed by someone 55 or older fell to 5.8% of assets in 2001, down from an average level of about 7% that prevailed throughout the 1990s.

Family debt payments ate up about 9% of family income both in 1992 and in 2001, EBRI reports.

The inflation-adjusted value of older families’ debt rose to an average of $39,000, from $27,500, but the percentage of older families with debt held steady at about 56%.

Debt ratios vary significantly with respect to family characteristics, with younger, wealthier, higher income and more educated family heads having higher debt ratios, EBRI says. Generally, family debt as a percentage of assets decreases with the age of the family head.

The percentage of family debt payments going to cover housing debt increased to 63% in 2001, from 57% in 1992.

EBRI suggests several possible reasons for the increase, including sharp increases in housing prices, the mortgage refinancing boom and the popularity of home equity loans.

EBRI researchers did spot one alarming trend: an increase in the number of older families that carry extremely heavy debt loads, according to Craig Copeland, an EBRI senior research associate.

The percentage of older families with heavy debt–defined for the study as debt payments exceeding 40% of income–rose from about 6% in 1992 to over 7% in 2001.

For those in the 65 to 74 age group, the trend was even more significant, rising from 4% of families in that group in 1992 to 7.5% in 2001, EBRI found. For those whose household head was 75 or older, the percentage in heavy debt rose from 3.3% o 4.1%.

In 2001, “families whose head was in the 55-to-64 age group were in a better position to save relative to past generations,” Copeland says. “The 65 to 74-year-olds haven’t done as well in controlling debt.”