The angst of the boomers
Lewis DiuguidThe Kansas City Star
Lots of baby boomers face a bleak economic future as more approach retirement, and that won’t help President Barack Obama’s re-election chances.
A recent AARP report showed that those age 50 and up are carrying more mortgage debt than ever, and the increase in the rate of serious mortgage delinquency of older Americans from 2007 to 2011 has outpaced that of younger homeowners. “As the mortgage crisis continues, millions of older Americans are struggling to maintain their financial security,” the AARP report said.
The report found that 3.5 million loans of people age 50 and up were underwater. In that age group, about 600,000 loans were in foreclosure, and 625,000 more loans were at least 90 days delinquent.
Also from 2007 to 2011, more than 1.5 million older Americans lost their homes because of the mortgage crisis. Unemployment among older workers is high, and they have a tougher time finding jobs.
They also have to live with lower wages, increasing property taxes and fixed incomes. But how did older people in this country — once one of the most financially secure because of nearly 80 years of Social Security, solid savings and interest earnings, pensions and about an 80 percent homeownership rate — become so vulnerable?
The AARP report pins part of the cause on the rising percentage of people carrying mortgage debt as they age. The amount of debt has risen steadily in the last 20 years. Historically low interest rates encouraged more borrowing — until the housing market collapsed. Older Americans tapped their home equity to finance their retirement and other needs. Living on credit has been part of a decades-old trend.
It was how Americans kept up financially as their earning power declined, said Rick Wolff in a report and documentary titled, “Capitalism Hits the Fan.”
Wolff, a professor emeritus of economics at the University of Massachusetts, Amherst, wrote that from 1820 to 1970s U.S. workers’ average productivity rose each decade, and so did their real wages. That changed in the 1970s when “real wages stopped rising as U.S. corporations moved operations abroad to pay lower wages and make higher profits, replaced workers with machines (especially computers) and hired ever more U.S. women and immigrants at lower wages than men received.
“Real wages in the later 1970s exceeded wages today,” Wolff wrote. However, American productivity kept rising. Wages stagnated at best, yet “employers’ profits exploded.”
Workers’ consumption of goods and services also increased but on the backs of American women entering the labor force over the last 30 years while husbands took second jobs and teenagers and retirees also worked for wages. The effects haven’t been good. The overworked, underpaid, overconsuming population is recording higher divorce rates, alienated children, alcoholism and drug dependence.
The AARP report says older workers suffer more health problems, anxiety, suicide attempts, hypertension, cutbacks on food and prescription purchases, depression and stress.
Wolff noted: “In such conditions, the American working class took another step to maintain rising consumption levels. It borrowed money in quantities unequaled by any working class anywhere ever. Soaring household debts proved another part of the groundwork of today’s crisis.”
U.S. industry profited even more from flat and falling wages, rising U.S. productivity and an unprecedented demand from workers for credit. Payday loans and other financial come-ons were put in place to stripmine and clear-cut workers of any wealth they tried to accumulate.
A Federal Reserve study this year showed that median families’ net worth fell from $126,400 in 2007 to $77,300 in 2010 because of lost jobs, pathetic interest on savings and plunging home equity. Baby boomers have shouldered a big chunk of the wealth loss.
Wolff says continuing the same practices will lead to the more problems. He recommends that workers take seats on boards of directors, democratizing the manner in which businesses are run.
The pay depression has to end so that people can see their real wages grow again and their wealth with it.
To reach Lewis W. Diuguid call 816-234-4723 or send email to Ldiuguid@kcstar.com.
Kent Mueller
8 months, 1 week agoLewis and his source say that corporate profits have risen since the 70’s due to outsourcing jobs. It was even said that profits “exploded”.
If that were true, then those profits should be visible. Would someone please post credible data that show how corporate profits have exploded since the 70’s?
It was also noted that older Americans are carrying relatively more debt than in the past. Yet, it was noted that low interest rates are a bad thing for baby boomers. Well, it’s also a good thing as it lowers debt service on debt.
Dan Hartshorn
8 months, 1 week agoSomeone recently said, “80 is the new 60.” Hope that isn’t true. Dang, hindsight is 20/20.
Mark Hastert
8 months, 1 week ago“Yet, it was noted that low interest rates are a bad thing for baby boomers. Well, it’s also a good thing as it lowers debt service on debt.”
…but sadly it lowers their return on investments more than it does their debt service. Look at the 1% return on savings and contrast with the lowest mortgage or credit card rates. The most conservative savers put their money in CDs or other conservative instruments. When you plan for you retirement you generally assume a given rate of annual return. I rather doubt that 1% was anyone’s assumption. Right now there is no such thing as a prudent strategy with a decent return on investment. The stock market is controlled by insiders, hedge fund managers, and institutional investors, banks charge you 4+% and pay you 1%. Unless you’re a prescient investor or a 1%er that can buy into the best shelters you’re walking a tightrope. I know retirees that have had their monthly income slashed with devastating effect on their lives….and Republicans still propose to reduce oversight and curb consumer protections. Is there any doubt at all whose side they’re on?
Kent Mueller
8 months, 1 week agoMark, a lot of what you said is hogwash. You said there isn’t a prudent strategy with a decent return on investment. You said “right now”, so I’m not sure what you mean by that, but the returns in the stock market have been quite good of late, having bounced off that low. If there is a prudent mix of quality fixed income and quality equities, returns have been good “right now”.
You seem to think the spread on which financial institutions operate is an evil thing. Sure, if you pay 1% interest, you have to cover your costs with a spread…typically about 3%…to cover costs and provide a profit. And be careful, I was in commercial banking for about 20 years, I know a little about a banks’ balance sheet and operating statement. The spread isn’t evil, Mark, it’s necessary.
And no, the stock market is not controlled by insiders, hedge fund managers and institutional investors. But then, if you think so, please provide evidence that that is true. You said control, so please show how they control?
George Hunsucker
Northland
8 months, 1 week agoYou just don’t “understand” Kent… If the government controlled banks, then they could loan at the cost of the interest they pay and that would be good in a hastert’s mind…
So little understanding of capitalism and investing yet so full of ideas… like my grandfather used to say, “never let a lack of knowledge prevent you from speaking with authority”….