Author and filmmaker James Scurlock put the spotlight on the issue of debt in America with the acclaimed documentary and companion book Maxed Out, a critical look at the lending industry. AARP Bulletin Today's Carole Fleck talked with Spurlock about the nation's looming financial crisis and how the situation affects the 50-plus population.
Q. How is the subprime loans fiasco and the drop in home values across the nation affecting people 50 and older?
A. It's a very scary time because many of them have accumulated a lot of their net worth in their homes, and now they're seeing their home values drop at the same time the stock market is dropping and fluctuating wildly. If you are close to retirement and you are watching what you thought was your nest egg suddenly disappear or at least become much less valuable, you might postpone your retirement. For people heading into retirement who still have a large mortgage, an adjustable-rate loan or an interest-only loan that they're going to need to refinance, it's an absolutely terrifying time [because] a lot of the easier credit we took for granted has now dried up.
Q. Are Americans' retirement funds such as 401(k)s in jeopardy as a result of the subprime mess and corresponding stock market volatility?
A. If people were projecting that they would make 10 percent a year on their investments, maybe they're looking at 5 percent now or even less. There are still safe havens out there—a lot of people are rediscovering Treasury bonds—but this game of chasing returns and believing that people would never default on their mortgages and that asset-backed securities were risk-free, those days are gone and the returns are going to come down.
Q. Why do you believe that the financial markets crisis on Wall Street will get worse?
A. I think the economy will get a lot worse, the problems Americans are seeing will get much worse, and the housing market will get much worse. There's very little credit to go around and that's what has changed so suddenly. We've seen foreclosures go up and defaults and delinquencies go up but we haven't seen the fallout yet from Americans unable to get a mortgage or refinance. If people can't refinance [their adjustable-rate mortgages] ... you're going to see a huge number go into foreclosure.
Q. You've said that credit cards are the next stage of this financial crisis. Why?
A. If you look at the numbers now, there's a huge spike in [mortgage] foreclosures, but credit card delinquencies are coming down a bit. People are leaving their homes but hanging onto their credit cards. It's the opposite of what people are supposed to do. It's fairly obvious that if you teach people to pay for their groceries, health care, prescription drugs and taxes with their credit cards, and teach them that having a credit card means security—that living on credit is a way of life—this has to change. You can't continue to borrow money to pay off old debt forever.
Q. What should the financial strategy be for boomers and older Americans?
A. To save [and] to own their home. A home can either be financial security or it can be an albatross. If you don't own your home and you have one of these [adjustable-rate or interest-only] mortgages that can reset, it's definitely an albatross. If you have a credit card balance you should pay it off. The terms and conditions of that card can change at any time and the cost can rise dramatically for any reason, so the key is saving and getting out of debt.