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Worrying trend of bad financial habits in our older generations.

There’s a worrying trend amongst our nation’s older generation, with more retirees exposing themselves to debt with the number of Australians over 65 with a mortgage increasing by 54% in four years

In an analysis of data from the Australian Bureau of Statistics (ABS), finder.com.au found that the number of Australian households with a mortgage aged over 65 has increased by 54 percent in 2011-2012 from four years ago.

There are now 142,000 of these aged households with mortgages, compared to 92,700 in the 2007-2008 period.

Plus they’ve taken on credit card debt.

On top of this, more than two in every five credit card holders (43 percent) are aged over 55, which is potentially 3.35 million cardholders who are close to or at retirement age with credit cards and out of these cardholders over 55, there are an estimated 233,790 who are over 77.

Michelle Hutchison, Money Expert at finder.com.au says that this indicates a growing trend of debt amongst our older generation.

“It’s a real concern because it shows that older Australians are taking on more debt and heading into retirement with a mortgage, which places greater pressure on them to work longer or be supported by their families. And the fact that almost half of Australians who have a credit card are older than 55  shows the increased risk of debt they may be exposing themselves to.

While it was good to see that seniors are generally more responsible with their credit cards, as our survey showed those over 55 are more likely to pay off their credit card balance each month, any debt is still a greater risk as their income can be more limited than those in the workforce.”

More seniors have a mortgage

The research also showed that the proportion of households with a mortgage aged 65 and over has increased over the past four years to 2012.[sam id=43 codes=’true’]

In 2007-2008 those over 65 represented 3.3 percent of households with a mortgage, compared to 4.5 percent in the 2011-2012 period.

Mrs Hutchison said that many Australians need to look at how to better manage their finances, especially those nearing retirement.

“Seniors may be holding onto their mortgage for longer because they have taken on more debt from refinancing, upsizing or renovating. Or even accessing their equity through a reverse mortgage to go on a holiday. But your retirement isn’t the time to put your finances at risk.

“We’ve seen more demand for reverse mortgages by Australians, with a 17 percent increase in Google searches for reverse mortgages over the past two years. Seniors should be careful as these types of loans are higher risk and can be more expensive than standard loans.”

The lesson:

The classic teaching most of received from our parents was: get a good education, get a good job, buy a home and pay it off when you retire.

However, unfortunately today paying off your home and living off the pension does not lead to much of an existence. And the fact that many Baby Boomers and older seniors are left with bad debt against their home is a worry and a sign of poor financial management during their lives.

So the lesson is become financially fluent and invest early in your life so you build yourself a sufficient asset base to see you through your senior years.

This involves buying high growth assets to build your database (rather than lower growth and higher cash flow type properties) then slowly lowering your loan to value ratio adnlving off the equity of your properties..

How many properties do you need to retire? I’ve explained it in a recent blog here.

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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