A dearth of money skills

Bind: AARP says many baby boomers and older consumers face serious consequences from making poor or ill-informed financial decisions.

May 06, 2004|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

They wield enormous financial clout, but many baby boomers and older consumers are poor money managers because they lack the time needed to understand the increasingly complex world of investments, according to a report released today by AARP.

"Many are doing well, but many are not. And the markets are really not always working to the benefit of the consumer," said John Rother, director of policy and strategy at AARP in Washington. "Many consumers are having trouble making the right decisions."

The potential consequences are serious.

Although baby boomers overall are better off than their parents' generation, almost half of them "are not prepared in any financial sense for retirement, and will be just as dependent on Social Security and other public programs as their parents," Rother said.

AARP's "A Report to the Nation on Consumers in the Marketplace" is the group's fourth annual study that looks at trends affecting older Americans. This year's report uses federal statistics and other surveys to analyze the behavior of consumers 45 and older.

AARP, an advocacy group for those 50 and older, said older consumers are a significant and growing economic power. In 2001, those 45 and older accounted for 52 percent of all consumer spending, up from 47 percent in 1984. The biggest spenders across all generations are 45- to 54-year-olds, who spent an average of $47,930 annually.

But spending power doesn't necessarily mean that older consumers are astute money managers.

"The level of financial literacy is quite poor for all older consumers," but particularly those 65 and older, Rother said. Almost half of those 65 and older ranked low on a survey of money management skills, he said.

Part of the problem is the complex financial decisions consumers increasingly are called upon to make, from selecting a mortgage or cell phone plan to choosing investments that will determine when, and if, they can afford to retire, AARP said.

Exacerbating the problem is that workers have less time to wade through the financial maze or to comparison shop, AARP said. A middle-income married couple today, for example, works on average 20 weeks more a year than their counterparts did 30 years ago, the report said.

Among other disturbing trends:

About 4.4 million heads of households 50 and older don't have a checking account, leaving them to rely on pricier alternatives such as check cashing services and tax preparer services offering refund anticipation loans.

Credit-card debt jumped 53 percent to $4,126 for the average family between 1989 and 2001. For those 65 and older, traditionally debt-averse consumers, the jump was even steeper - a 149 percent increase to $4,041.

Bankruptcies in the 1990s also rose for all groups except those under age 25, which saw a 4 percent decrease in filings. The biggest percentage jump in filings occurred among those 65 and older, who filed 82,207 cases in 2001, a 244 percent increase over a decade. The second-largest gain was among those 45 to 54 who filed 414,608 cases, a 131 percent increase.

Many baby boomers lack confidence in their money skills. In a separate AARP poll also released today, 27 percent of baby boomers said they were worse at handling money than their parents. Only 10 percent of those 58 and older felt that way.

To fix the problems highlighted in its report, AARP makes a series of recommendations, including having investment firms adopt simplified disclosures, similar to nutrition labels on food products, that will make it easier to comparison shop.

Don Blandin, president of the American Savings Education Council, said one of the more troubling statistics in the report is the growing credit-card debt of those approaching retirement.

"This is at a time when opportunities to create wealth are diminishing and opportunities to spend the wealth are increasing with the rising health care costs," Blandin said.

He also said he is concerned that consumers won't seek the professional advice they so badly need because distrust engendered by well-publicized financial scandals.

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