Credit cards as “survival” tool? This is nuts!

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By Jonathan Chevreau,

Financial Independence Hub

A disturbing survey was released today from Minneapolis-based Allianz Life Insurance Company of North America. Its press release about the Generations Apart survey led off with the statement that “Living with debt has become a way of life for both Generation X (Gen X) and baby boomers as the stigma of owing money is gradually disappearing.”

Here’s the bit that really got me: it found that 48% of both generations “agree that credit cards now function as a survival tool” and 43% agree that “lots of smart, hardworking people who are careful with spending also have a lot of credit-card debt.”

Allianz Life did note that this alarming “growing comfort with debt” may affect the retirement plans of Gen X: “Twice as many Gen Xers (27% versus 11% of boomers) say they are either unsure about when they plan to retire or don’t plan to retire at all.”

The 2,000 Americans surveyed include 1,000 boomers aged 49 to 67, and 1,000 Gen Xers aged 35 to 48. It found Gen Xers are carrying 38% more in mortgage debt (average of US$144,000 versus $90,000 for boomers) and 45% more in non-mortgage debt, comprised of student loan debt (average of US $12,000 versus $5,000 for boomers) and credit-card debt (average of US $8,000 versus $6,000 for boomers).

It suggested one reason Gen Xers have higher debt is there generally earlier use of credit cards – 76% of Gen Xers got their first credit card between the ages of 18 and 24 versus 68% of baby boomers.

Almost half of GenXers revolve their credit card balances

The really disturbing finding is that 46% of Gen Xers said they “revolve” their credit-card balances (only paying a portion each month) compared with only 32% of boomers. You better believe that kind of behaviour is going to delay GenX’s collective “Findependence Day!” More Gen Xers (23% versus 19% of boomers) said they believe “you can’t save for retirement until you pay off credit cards.”

I might add one word to that: “Duh!”

Allianz says that over the last 30 years, there’s been an attitudinal shift, so that debt is “now perceived as a normal part of one’s financial experience.”  “If Gen Xers continue to delay saving for retirement until they are completely out of debt, their nest egg is clearly going to suffer, and that has fundamentally altered the way people spend and save,” says Katie Libbe, Allianz Life vice president of Consumer Insights, “For Gen Xers who are behind on saving, better debt management, with a focus on credit-card spending, should be the first issue they address to get back on track.”

Dealing with Debt

More than a third (36%) of Gen Xers in Allianz Life’s study said they have more than US$5,000 in credit-card debt and a quarter admitted to carrying more than US$10,000. Also, 15% of Gen Xers said they also owe money to their parents.

Allianz Life warns that this greater acceptance of debt means many Gen Xers will have less money available for savings and “will miss out on decades of compound interest.”

Living for Today

Asked which financial philosophy they preferred, half of Gen Xers said “enjoy and live for today” versus only 39% of baby boomers. Most (61%) of boomers chose “save and plan for tomorrow.” 73% of boomers said they are clear about how much money they will need in retirement versus only 52% of Gen Xers.

“Although many Gen Xers are facing an uphill battle when it comes to saving for retirement, the good news is there is still time for them to change their bad debt habits,” added Libbe. “By taking a few simple steps like regularly tracking their spending and avoiding any new debt, burdened Gen Xers can take a significant step toward building a more successful financial future.”

Millennials should forget Retirement, but embrace Financial Independence.

One thing I would add in conclusion is that the Hub does not even believe Millennials should worry about Retirement. What they need to aim for is Financial Independence, which is not the same thing.

Read for example, this guest blog by financial planner Alan Moore, whose firm caters to Gen X and Gen Y investors: Why Millennials should plan for Financial Independence, NOT Retirement.

 

2 thoughts on “Credit cards as “survival” tool? This is nuts!

  1. This article gives a person lots to think about. In general I believe the boomers are increasing their debt loads because borrowings costs are so low. You see adds for car loans that say ‘0″ down and “0” interest rate. Some people look at the loan as being essentially free but really you are buying a depreciating asset and you still need to pay it back.
    People are also being seduced by award points on their credit cards and I wonder what impact this is having on their purchasing decisions. Who invented points in the first place?

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