We all know that money worries can be deeply stressful to the point of distraction, but did you know that financial burdens can also adversely affect your physical health? New research out of the Urban Institute is now linking the presence of financial debt with a range of health conditions in older adults, a worrying finding for many caught in the spiral of increasing debt.
In this New York Times article from writer Paula Span, we are introduced to some of the human stories behind these findings, the factors that go into such links, and some ideas for how to navigate debt before it damages not only your financial future, but your life as well. (Please note that accessing the New York Times article may require a subscription.)
The Dilemma of Debt
Span’s article begins with the story of a woman named Denise Revel, age 62, who headed for the emergency room one day in 2011 because her history of blood clots made a pain in her leg a worry. Revel recovered, but had no insurance, so she could not pay the medical bill. Fast-forward to 2015, when a workplace accident severely injured her leg, leading to a long stay in the hospital and rehab. While worker’s compensation paid for some of the debt, she was still left with thousands to pay – and that was on top of the debt she was still working on from 2011.
Along with paying off her car and other expenses, Revel worries about needing medical care in the future and continuing to accrue debt. “It’s like a dark cloud over your head,” she told Span, who adds, “With some older people finding themselves unable to dig out from debt, such dilemmas threaten any notion of a comfortable retirement and have generated alarm among economists and other researchers.”
Debt and Illness: A Causal Link
Those researchers have begun putting actual numbers to these worries. Span explains, “Now, researchers at the Urban Institute, by analyzing broad national data over nearly 20 years, have reported that indebted older adults fare measurably worse on a range of health measures: fair or poor self-rated health, depression, inability to work, impaired ability to handle everyday activities like bathing and dressing.”
Moreover, she reports, those with debt were also more likely to suffer from doctor-diagnosed illnesses: hypertension, diabetes, cancer, heart and lung disease, heart attacks, and strokes.
Stipica Mudrazija, a senior researcher at the Urban Institute, sums it up this way, telling Span: “There seems a clear causal link between certain types of debts, especially at higher amounts, and negative health outcomes, both physical and mental.”
Generational Differences Concerning Debt
As the New York Times article points out, our collective relationship with debt is complicated, and Mudrazija is first to admit that debt itself is not necessarily negative. “Debt is not a bad thing in and of itself,” he said. “If it’s used cautiously, it can build up wealth over time.”
What’s more, the relationship between adults and debt often reflects significant generational differences, Span writes. Older adults are expected to reduce indebtedness as they approach and enter retirement, and therefore traditionally have carried less debt than younger adults. But this is changing: each successive generation of seniors is now more indebted than the last.
As economist Annamaria Lusardi told the New York Times, “There’s a group of older people in financial distress. They’re highly leveraged; they’re carrying high-cost debt. They’re being contacted by debt collectors.” The result? “They’re not going to enjoy their golden years.”
Secured vs. Unsecured Debt: the Difference Matters
In her New York Times report, Span goes on to explain the Urban Institute study. “Dr. Mudrazija and his co-author, Barbara Butrica, a senior fellow at the institute, used data from the national Health and Retirement Study and calculated that in 1998, about 43 percent of Americans over age 55 had debt, a median of $40,145. By 2016, about 57 percent had debt and more of it: a median $62,784, adjusted for inflation.”
Span adds, “The proportion whose debt represented 30 percent of their total assets had risen to almost 45 percent, and the proportion whose debt-to-asset ratio had reached a worrisome 80 percent nearly doubled, to 15 percent.”
But it turns out that it’s not just the debt that causes health problems. It’s the kind of debt, according to the study. “Secured debt, like mortgages and other home loans, is backed by an asset: the dwelling,” Span explains. “Such debt rose among older borrowers as real estate prices soared and interest rates remained low,” and it’s increasingly less common for borrowers to pay off their mortgages before they retire.
Interestingly, the research shows that secured debt did not seem to cause the same health outcomes as unsecured debt like credit card balances, student loans, and medical payments, which usually charge higher interest rates. Span writes, “About 24 percent of older adults’ debt was unsecured in 1998; by 2016, the proportion had climbed to 35 percent.”
The Risks of Unsecured Debt
Unsecured debt has an alarming effect on older people, Span writes. “Dr. Mudrazija and Dr. Butrica found, for example, that limitations in a person’s ability to perform activities of daily living was only slightly higher for people carrying secured debt than those without debt; the difference did not reach statistical significance. But those with unsecured debt were 28 percent more likely to need help with such activities.”
The research revealed that the more unsecured debt you have, the more health risk you entertain. “If what they owed amounted to 30 percent of their assets, they were 65 percent more likely to have trouble with daily activities compared with those with no debt and almost twice as likely if they owed 80 percent of their assets. Other health problems showed similar associations with unsecured debt,” Span writes.
What is it about unsecured debt that makes it so dangerous? The researchers aren’t certain enough to make a clear statement on it. Dr. Mudrazija is cautious, speculating that the apparent connection could also represent a converse relationship: people with worse health might be more inclined to borrow more, since health care costs have risen so much.
But Dr. Mudrazija theorizes that “secured debt is a planned debt. I decide I’m going to buy a house. It’s an investment, and often a well thought-out decision. Unsecured debt often comes as a surprise. You lose a job and have to live off a credit card. You get sick and face a huge hospital bill. The shock and stress might translate to deteriorating health.”
Pressured to Build Wealth
Our societal relationship with wealth could also be a factor. Span writes, “In a 2020 study, also using Health and Retirement Study data, Dr. Lusardi and her co-authors found that even in a relatively high-income group of 51- to 61-year-olds, whose average household income was $103,000, almost one-quarter reported being contacted by bill collectors.”
Dr. Lusardi said of the findings, “I was frankly shocked. People close to retirement should be at the peak of their wealth accumulation.” Nevertheless, the pressure to accumulate wealth is strong, felt most acutely by seniors with less income and education, along with women in general, and people of color.
Dr. Mudrazija used credit bureau data to explain the disparity. “In ZIP codes where people are better off, older people carry mortgages, but they pay them off,” he said. “Where people are poorer, they seem to carry debt indefinitely.” In her article, Span adds that these lower-income borrowers are also more vulnerable to predatory payday lending.
Avoiding Credit Traps
While higher incomes and more comprehensive health insurance could go a long way to helping older adults avoid this kind of debt – and the health consequences that come with it – there are other things that researchers advise.
Span writes, “Dr. Lusardi advocates financial literacy training in workplaces, where employers are more apt to emphasize retirement savings than debt management. Some borrowers don’t grasp fundamentals such as the way interest compounds, she said.”
And Dr. Mudrazija adds that “regulating credit, providing clearer consumer information and reining in predatory lending practices could also reduce high levels of unsecured debt.”
A Lifelong Burden
For Denise Revel, with whom the New York Times article began, there was a glimmer of hope. Span writes, “Last fall, Ms. Revel got a call out of the blue. The nonprofit RIP Medical Debt, which uses donated dollars to buy bundled medical debt, had acquired her long-outstanding emergency room debt of $2,728.50 and erased it.”
Now unable to work and relying on disability payment, Revel is insured by Medicare and Medicaid, which will shield her from most future medical debt. She is down to her last three months of car payments, a real victory. But Span finishes her article with a chilling dose of reality, a testament to how long-lasting debt can be to those trapped in it:
“[Revel] still owes a local group of vascular specialists $5,000. At a negotiated $25 a month, she will be nearly 80 when she pays it off.”
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(originally reported at www.nytimes.com)