Consumer Borrowing Up as Boomers Cut Back on Retirement Funding
ARLINGTON, Va. -- Americans are going for the plastic in increasing numbers, according to NAFCU's Macro Data Flash Report analysis for early May.
The report found that total consumer installment credit increased by 7.2% to an annualized $2,558.4 billion. And a separate survey from AARP recently found that one in 10 baby boomers and slightly older retirees has to borrow to cover the costs of everyday living expenses. Thirty-three percent of just over 1,000 AARP members surveyed said they'd stopped paying into their 401(k)s.
NAFCU Staff Economist Katrin O'Connor said that the pace of borrowing was greater than expected and that the spike in consumer credit, which doesn't include real estate secured loans, showed that consumers are now forced to use credit cards to sustain their spending habits. She cited the decline in disposable income and reduced home equity for the growing trend.
NAFCU also found that nonrevolving credit went up at an annual rate of 6.8% to $1,061.1 billion, while revolving credit jumped 7.9% to $957.2 billion. Yet, total credit union consumer lending slowed to $230.7 billion for March from February's $232.3 billion, while revolving credit stayed flat, staying level with February's $30.5 billion. Nonrevolving credit union consumer lending also decreased by $1.5 billion, landing at $200.3 billion in March.
Looking at the figures, O'Connor found that the surge in nonrevolving credit, including car loans, isn't likely to continue given the sharp drop in vehicle sales in April. NAFCU projects that consumers will become more cautious about spending, pushing total consumer credit down a half-point to 5% in 2008 under 2007's 5.5% figure.
That growing level of caution was reflected in the AARP survey as well, with respondents saying they are leaning more heavily on family members, friends and community groups for help to get by. Some four in 10 people called remarked that they'd helped children with bills; 8% helped aging parents with bills and 14% claimed to have cut back on medications to cut costs. Six in 10 have stopped eating out as often. A common refrain was the increasing cost of gas.