Living on the Financial Edge: New Debt Challenges for At-Risk Americans
How financially capable are Americans? Over the last year, Filene has released a series of reports on the financial state of four groups that are essential to healthy credit unions—Gen Y, pre-retirees, Hispanics, and women. The data paints a troubling picture of various American subgroups’ financial capability.
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As a group, Millennials feel overburdened with debt.
“Gen Y Personal Finances: A Crisis of Confidence and Capability” reveals the struggles Millennials face in personal financial management.
- Two-thirds have at least one source of long-term debt, whether student loan, home mortgage, or car loan.
- 30 % have more than one source of long-term debt. Much of this debt is healthy but to it,
- Too many rely on expensive borrowing like credit cards and payday loans.
"Financial Capability Near Retirement: A Profile of Pre-Retirees” suggests pre-retirees and Gen-Yers share many challenges. In the years before retirement, 60% still have at least one source of long-term debt. Pre-retirees’ greatest source of debt is home mortgages (44%).
Nearly 30% of pre-retirees do not have retirement accounts. Baby boomers also report using their credit unions less in retirement, citing retirement assets elsewhere and lack of convenience.
Like many ethnic groups, Hispanics have specific financial needs. “Financial Capability among Highly Educated Hispanics” reports that,
- 8 in 10 highly educated Hispanics have at least one credit card, and
- Half of these report behaviors that can damage credit scores, increase interest rates, and harm their future borrowing capacity.
- 35% of respondents indicated they used one or more alternative financial services (AFS) within the five years preceding the survey while
- 22% reported taking loans or hardship withdrawals from their retirement accounts.
- Rarely does this group seek financial advice, as nearly 60% feel that advisors are too expensive.
“The Gender Gap: Troubling Financial Capability Findings among Women” report suggests American women are not planning enough for retirement and overestimate their financial ability. Among women aged 51–61, One-third report that neither they nor their spouse has a retirement account.
For respondents taking a five- question financial literacy test, only one-quarter of women are able to correctly answer the three simplest questions—about interest, inflation, and risk diversification (indicating a basic level of financial literacy)—compared to 47% of men.
How Can Credit Unions Help?
While all four groups face similar challenges related to short-and long-term debt, financial literacy, and retirement planning, consider these promising approaches:
- Effective messaging is needed to encourage baby boomers to be mortgage free in their retirement years. But in order to create impact, credit unions should also support that messaging with boomer mortgage products that offer fixed-rates and are designed to ease the mortgage burden in the retirement years.
- Debt management tactics will resonate with Millennials. Credit unions can encourage proactive debt management by understanding.
- It will be critical to offer low-cost products and services to eliminate the need for Hispanics to engage in expensive financial behaviors. Spanish-speaking financial advisors can help foster a culture of comfort and trust for potential Hispanic members.
- In light of women’s low levels of financial literacy and the unique challenges they face, channels and counseling should be directed at women. Women differ broadly over demographic categories, like age and marital status. For this reason, customized advice through counselors or remote channels should be provided.
Filene thanks our generous partners for making this research possible:
Categorized: 'Human Behavior'
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