A study from the Aspen Institute revealed that 47% of older adults in the US are not prepared to handle financial shocks, such as medical expenses,
emergencies, or a sudden loss of income. The study outlines how older individuals are relying on financial tools that take advantage of them by abusing penalties, interest rates, and fees, in order to squeeze as much out of them as possible.
Older adults, who are classified as people aged 55 and above, are especially vulnerable to financial shocks, and have a hard time managing them. This is due to their change in income streams when they leave the labour market, as well as their heightened
exposure to medical expenses, disabilities, and need for long-term care.
The research indicated that nearly half of people over 55 in the US do not possess enough liquid savings to handle financial uncertainty. Only six weeks of income is needed to keep older adults from falling into debt and protect them against fiscal flux.
Older adults are less tech-savvy and therefore more susceptible to financial scams. With artificial intelligence (AI) and the rise of deepfakes, these scams have become much more difficult to discern. In 2022, adults over 60
lost £3.1 billion to financial fraud.
According to SCAN Foundation president and CEO, Dr Sarita Mohanty: “Without the emergency savings needed to weather a financial shock, millions of older adult households lack the protection to stay financially afloat, avoid debt, enjoy a comfortable retirement,
support their families, contribute to the U.S. economy, and pass on wealth to the next generation.”
Dr Mohanty states that the current generation of older adults have greater financial burdens than their predecessors, including mortgages, student loans, and credit card debt. On top of that, programs such as Medicare, social security, and retirement plans
cannot be as relied upon as they were in the past.
The research indicates that the number of adults over 65 in the workforce has
quadrupled since the 1980s. They are estimated to make up 57% of the workforce by 2032.
Policy changes to the social security system have raised the age of retirement from 65 to 67, encouraging older people to stay in the workforce for longer.
Older adults also have increased risk of debt than their counterparts would have in the 1990s. For this there is no one solution, as there are varying levels
of debt and reasons for falling into it, but debt is increasing nonetheless and the government needs to enact more policies to protect low-income households.
“Exacerbating these issues is the fact that there are few financial tools that address the realities of aging in America, especially for lower-income Americans. There are few comprehensive offerings that work with pensions, retirement income streams, and
social security benefits,” says Dr Mohanty.
Inequity in financial support
Many older adults also do not have the guidance or facilities to ensure they are financially taken care of in their later years. Aspen research found that
only 34% of employed Baby Boomers have a dedicated savings account to reserve funds for emergencies.
Lower income households also face eligibility limits to their savings accounts around applying for benefit programs such as Medicaid and supplemental income. This further discourages the use of savings tools. Those without a savings account are left with
less-than-reliable financial tools.
Dr Mohanty outlines how marginalised groups are impacted more than others: “Today’s financial insecurity is even more pronounced for older adults from historically marginalised populations, which consists of people over 65 years old, populations of colour,
low income (defined as up to 400% federal poverty level), and those geographically underserved, which includes individuals in rural (or urban) communities and those without adequate access to health and social care. They are the least likely to benefit from
existing tools designed to help create liquid savings, such as automatic payroll deductions.
“Older adults of colour are more likely to hold physically demanding jobs which are more likely to be jeopardised later in life. Furthermore, within the ‘forgotten middle’ — middle-income older adults who likely don’t qualify for Medicaid long-term care
but lack financial resources for basic supports — Black and Hispanic older adults disproportionately fall into the
lowest quartile of financial resources and have fewer liquid assets and less equity.”
Fintechs and financial professionals can help older adults with their financial savings plans, but these facilities are not as accessible to the lower-income households which need them most. To bridge this gap, there needs to be more financial tools geared
towards aiding those in the lower-income bracket.
Financial tools available to support older adults
Commenting on how older adults can replenish their savings in the current turbulent economy, Dr Mohanty states that workplace retirement savings plans and workplace emergency savings accounts are becoming more common.
“Today, a diverse range of organisations — including employers, financial institutions, payroll providers, and policymakers — have come together to prioritise more emergency savings account opportunities, helping the public towards prioritising short-term
savings, and extending the reach of emergency savings solutions to millions of workers. Yet, despite this rapid development, most emergency savings tools are not tailored to the needs of older adults, and some tools older adults must rely on carry negative
financial consequences, like fees, interest, or increased household debt. These tools can further compromise financial security,” Dr Mohanty explains.
Emergency savings tools and automatic enrolment services can support older adults in creating a reserve of funds from various channels, as they migrate from work to retirement.
Dr Mohanty adds: “Older adults may consider separating rainy day funds from other streams of income into accounts that allow for liquidity or immediate access, which is crucial in an emergency situation. A well-designed, purpose-built emergency savings
account aligned to the multiple income streams older adults rely on, will help individuals to easily increase or adapt contributions to make up for withdrawals.”
She adds that having a dedicated savings account is crucial, and that older adults should employ a multi-channel approach to savings, taking funds from their primary income, social security payments, pensions, and other savings to ensure they have a rainy-day,
financial cushion.
“Innovation to offer new financial tools that help build liquid savings, navigate different benefits systems, and cater to older adult needs is critical to ensure greater financial security of older adults, particularly given the rapid pace at which this
population is growing. By 2040, there will be 80 million older adults in the U.S. We will have more older adults than children by then and the older adult population is becoming more racially, ethnically, and economically diverse. This demographic is also
the largest consumer of healthcare services.”
Dr Mohanty explains that fintech collaboration with banks and policymakers will make a big difference in encouraging financial wellbeing and support for older people. Savings and fund management is vital to ensure they are not left financially vulnerable
when faced with financial trouble.
Financial tools to navigate changing income sources, along with support from banks and legislation, are essential for the future, especially as the economy becomes more unstable from inflation and social crises.