(AP Photo/Michael Graczyk)
The Baby Boomer generation has defined American society since they came of age in the 50s and 60s. Recently, the talk has shifted to how Millennials' experience stands in stark contrast. However, there is one segment of the Baby Boomer generation that might be a perfect bellwether for how the following generations will approach retirement: those who have non-prime credit scores.Emerging research suggests that a widening gulf is opening up in American society between those who have credit scores that give them access to mainstream credit products and those whose scores fall below the FICO line of 700 and do not have access to the lubrication that credit provides in their daily finances. This is more than a simple inconvenience.
Looking at that gulf in the Baby Boomer generation can illuminate the impact of an economy that increasingly isolates riskier borrowers, marginalizes their needs, and inadvertently makes it more difficult for them to make modest financial progress.
Millennials are suffering from job insecurity, but feel they have plenty of time to make up for lost ground before retirement. Non-prime Baby Boomers could be a window into their future. One in four non-prime Baby Boomers work more than one job and 62 percent of them have hourly work. Consider John, an Uber driver in the Dallas area. He had worked for a family-owned company for years. His retirement was tied up in the company's prospects. Then, it lost the biggest account and, within months, the company closed down. The hope to retire evaporated with the company. He turned to driving Uber.
John's experience is indicative of the instability of non-prime Baby Boomers' day-to-day finances. Seven in 10 admit to running out of money at least once in the prior 12 months. More shockingly, one in five run out of money every single month. One cause may be the instability of their monthly income. Thirteen percent of them have difficulty predicting next month's income. Is it any wonder that 30 percent of them worry about covering their monthly expenses?
They also are stymied by unexpected expenses. When asked if they could come up with $1,200 if the emergency arose, 47 percent of them demonstrated little confidence. Everyone has unexpected bumps in their personal finances, and non-prime Baby Boomers try everything to get over them - 401k loans, alternative lending products, credit cards, and even family and friends - although they aren't much help. Only 11 percent of this group think first of turning to family and friends for financial help.
And unfortunately, the instability of their children can exacerbate their own problems. Consider Sally (not her real name). She was poised to retire from twenty years of teaching school when her adult children turned to her for help. They put an additional strain on her finances. She is now postponing her own retirement until she can recover lost ground. Her natural instinct to help her children has taken a toll on her. By her own admission, it has taken her a while to learn to say no.
Spreading finances too thin made her vulnerable when challenges struck. Consequently, Sally's credit score took a tumble. Now, when even minor challenges come, she must either turn to expensive alternative lending products or suffer additional deleterious entries on her credit report. Getting back to where she needs to be means beating an uphill path…against a stiff headwind.
It doesn't need to be this difficult.
Non-prime consumers have unstable incomes and limited option for credit, which creates problems when faced with the financial uncertainties of normal life. Government and business leaders have done little to attempt to fix the cause of the instability in their lives. Consequently, the non-prime consumers need more options-rather than fewer-for weathering these minor financial challenges.
The worthy instinct to protect the consumer often creates damaging side effects, especially when we look narrowly at the problem. Removing options doesn't mean that non-prime consumers can start using products that were never available to them in the first place. It often means that they are forced into even worse options that are less regulated, sit on the fringes of the economy, or unravel stability in other parts of their lives.
Unless we face the problem and make meaningful changes, it's not going to get any better for Baby Boomers, or the glut of younger people who look more like the non-prime Baby Boomers than their more fortunate prime counterparts. We need to re-think the old policies designed around protecting banks, limiting innovative competition, and focusing on companies rather than individuals.
However, the first thing we can do is understand the consumer. We need to understand the situations, challenges, attitudes, and needs of the non-prime consumer. No policy, idea, product, or plan will make sense until more people do.
Jonathan Walker is the Executive Director of Elevate's Center for the New Middle Class. The Center researches, advocates, and educates to promote open dialogue about the challenges that face credit-constrained Americans.