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Many Minority Retirees Are Struggling With Debt

Study finds disparities between residents of minority and white communities

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En español | Older retirees in predominantly minority neighborhoods are struggling with debt in ways their counterparts in white communities are not, according to a new study from the Urban Institute.

To figure out how older Americans have fared financially in recent years, researchers sampled credit bureau data from 2010 to 2019, tracking individuals’ financial progress during that period. Because the credit bureau information did not include details on race, the researchers used ZIP code information from the Census Bureau to determine how borrowers’ communities compared racially.

The study found that older adults in minority communities were more likely to have faced economic challenges during that decade, even though all of the individuals the researchers tracked began the period with good, and comparable, credit scores. For example, 26.7 percent of residents in minority ZIP codes experienced poor credit scores during that time, while only 16.6 percent of their counterparts in white ZIP codes did.

Retirees in minority communities also struggled for longer periods than their counterparts in wealthier communities. In the minority communities, 17.1 percent of older adults had poor credit for five or more years, while only 13.5 percent of those in white neighborhoods experienced the same thing.

"Part of that difference could be just the types of borrowing opportunities those living in disadvantaged neighborhoods may have compared to those in more advantaged neighborhoods, and unsecured debt versus secured debt,” says Barbara Butrica, an Urban Institute senior fellow who coauthored the report. For example, borrowers in lower-income, minority communities may be taking payday loans or “may not be able, oftentimes, to qualify for mortgages and loans through traditional borrowing establishments."

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Predatory lending, debt collection are problematic

Older residents of predominantly minority communities were also more likely to see their debts go to a collection agency. The researchers found that roughly 20 percent of loans among the oldest lower-income and minority retirees end up in collections for nonpayment. That's roughly twice the rate for higher-income and white retirees.

Butrica says that offering more education about financial planning and increasing regulation on some lenders could prevent people from encountering financial difficulties as they age.

"Cracking down on predatory lending, especially for disadvantaged groups who have a harder time getting into the more traditional lending opportunities, could help,” she says.

The study finds that overall, debt among Americans age 50 and older has decreased since the Great Recession. But that takeaway hides a troubling increase in debt among adults age 70 and older. “Not only are they more indebted, but our findings suggest that their financial health — reflected by their credit scores and capacity to borrow — has also worsened over time,” the study says.

For example, from 2010 to 2019, the average increase in debt among those experiencing an increase was $16,500 for 80 to 89-year-olds.

"For those 70 and older, they're carrying less debt than those who are younger, but they're carrying more than [that age group has] in the past,” Butrica says. “That's a little concerning if that trend continues."

Kenneth Terrell covers employment, age discrimination, work and jobs, careers, and the federal government for AARP. He previously worked for the Education Writers Association and U.S. News & World Report, where he reported on government and politics, business, education, science and technology, and lifestyle news.