Why Do Older Americans Have So Much Credit Card Debt?

You would think as people grow older, they grow wiser. And it isn't wise to carry a lot of credit card debt, since the associated interest rates tend to be quite high. Yet, a new report out from the Lending Club indicates that older Americans have more credit card debt than younger ones. Why might this be?

Here's the stat:

Older adults, however, are more likely to carry credit card debt, with 73 percent of those 55 and older who have debt besides a home mortgage reporting they have credit card debt, compared to 60 percent of their 18-34 year old counterparts.

Felix Salmon is baffled by this revelation:

Why are older Americans disproportionately likely to be racking up credit-card debt? I can see why Lending Club commissioned this survey: it's pretty much a no-brainer for these people to refinance their credit card balance with a plain-vanilla unsecured loan, but precious few of them seem to do so. And I daresay that if you looked closer, a lot of them could even pay off their credit card debt with savings, and aren't doing so.

Or is there something I'm missing, here? Is there any good reason why a whopping 73% of older Americans should be running credit-card balances?

First, it sort of makes sense that older Americans would have more debt than younger ones, excluding mortgages and student loans. The more years you have lived, the more time you have had to rack up debt. Sure, your income improves to pay for more stuff, but a feeling of entitlement also develops for some people, where they believe they've earned additional purchases or a higher standard of living by working hard all those years. Additional expenditures come up over time with children, paying for college, home maintenance, and other costs that younger adults might not have to deal with. Plastic might be the solution.

But still, as Salmon says, why not utilize an unsecured loan? The assumption here is that the interest rate on a loan would be better than a credit card rate. It isn't necessarily. Unsecured loan interest rates often approach credit card rates. They are both, after all, unsecured. Meanwhile, these older Americans likely have a stronger credit history established than younger adults. If they're anything like me, then at least once-a-month they receive invitations for credit card balance transfers or low introductory offers of zero or a few percent. That's a lot better than you'll do on any unsecured loan that I've ever heard of. Indeed, you might even make more than that on an investment, instead of using savings to pay it off.

I'd be interested in seeing the average effective interest rate on the balances of these two age groups. That would take into account any balances with interest accruing at ultra-low rates. With that information, I suspect this data might make more sense.

Or, perhaps younger people are just savvier about their finances after all!