Tuesday, September 18, 2012

The Oldsters and Their Relatively New Student Loan Burdens

We all know that outstanding student loans amount to more than a trillion dollars today.

We also know that many adults are struggling to pay their bills.

Further, we're painfully aware that many Americans are having great difficulties saving enough money to get them through their retirement years.

But what we may not realize is how all these issues are interconnected and so closely tied together in many cases.

School debts may thwart retirement savings puts it this way:

"It’s no secret that the baby boomers are falling short of the savings they will need to maintain their standard of living in retirement. What isn’t widely understood, though, is the role that education debt is playing in their financial woes.

That’s one of the highlights of a study the nonprofit National Center for Policy Analysis released last week. Using data from the Bureau of Labor Statistics, the study compares the spending habits of today’s 55- to 64-year-olds with those of the same age group 20 years ago. (It does the same for 45- to 54-year-olds.)

Over the past two decades, the study found, as a share of those groups’ spending on various goods and services, “education expenditures increased the most of any spending category — by 80% for 45- to 54-year-olds and by 22% for 55- to 64-year-olds.” The study also notes that one-third of the nation’s more than $1 trillion in student loan debt is held by individuals over the age of 40, many of whom are helping their children pay for college and repay loans.

Because the cost of a college education has risen faster than income for decades, the study’s authors say, Americans “are going deeper into debt to pay these expenses,” making it harder to save for retirement. . . .

Among the other findings of the study:
  • “More than half of parents are helping to support their adult children.” Among them, 59% are covering living, transportation, medical and student loan expenses for children who are no longer in school.
  • From 1990 to 2010, the amount 45- to 64-year-olds spent on housing, including taxes, maintenance and insurance, rose by about 25% as a share of expenses.
  • Health-care spending rose 30% for the younger group and 21% for the older group.
  • Baby boomers have not increased their spending on “frills, such as entertainment or dining out.” In fact, food purchases, including restaurant spending, fell by about 20% for both groups over the past two decades.
  • Spending on furniture fell by 25% for 55- to 64-year-olds and by one-third for 45- to 54-year-olds. And clothing expenses fell by 42% for the younger group and 70% for the older group.
  • The study also found that “real median income” for 45- to 54-year-olds fell from $67,795 in 1990 (in 2010 dollars) to $62,485. For the older group it rose, from $52,340 in 1990 to $56,575."

    Summing Up

    Debts are debts. Somebody, someday, and in some way will have to settle up.

    And as and when that happens, the law of unintended consequences will likely have reared its head once again.

    And when it does, we'll have to deal with that ugly and unplanned reality as well.

    That's what all too many of our fellow Americans are now finding out about the negative effects of burdensome student loans

    Finally, the more we know about how things really work, the better off we'll be.

    And that's especially true with debt and its servicing requirements and obligations.

    Thanks. Bob.

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