The Elderly Are Getting Richer; The Young, Not So Much

 By Benjamin Gran 

The past few years of economic turmoil have been hard on millions of Americans, but some Americans are weathering the storm better than others. Older Americans have seen significant gains in financial well-being compared with younger generations. According to a recent report from the Pew Research Center, there is a rising “Age Gap” in America’s wealth.

Older Americans (age 65 and over) have seen their net worth increase roughly 42 percent during the past 25 years (1984 to 2009), while younger Americans (age 35 and younger) have a median net worth that is 68 percent lower than people their age enjoyed 25 years ago.

There are many lessons from this Pew Research Center report about America’s rising “Age Gap.”

The older people are, the richer they become.

As of 2009, America’s median net worth – the total wealth of a typical household adding up all assets like homes, stocks, savings, retirement funds, and subtracting all debts – was $71,635. However, the older age groups have much higher net worth than younger Americans. Americans age 65 and over had a median net worth of over $170,000, while Americans ages 35 to 44 had only $39,601 in wealth. And the least-wealthy Americans of all are those younger than 35, with only $3,662 in median net worth.

To some extent, it’s not surprising that older people will have a higher net worth – they’ve had more years to work, earn money, save money and pay down debt. But the troubling part of this survey is that it shows that younger Americans are struggling more than ever before to build a solid financial foundation. As the Pew study explains, “The current gap is unprecedented. In 1984, the age-based wealth gap had been 10:1. By 2009, it had ballooned to 47:1.” Americans age 65 and over have 47 times as much wealth (on average) as those who are less than 35 years old. This is a sign that even though the economy has been tough for everyone, it’s been especially hard for the young.

The number of people with “no net worth” is on the rise.

According to the Pew report, in 1984, 11 percent of all U.S. households had no positive net worth, meaning their debts were equal to or greater than their assets. By 2009, 20 percent of all American households reported having no positive net worth – this means, for example, that even if they have $5,000 in a savings account, it’s cancelled out by owing $10,000 on a credit card.  Or a family might have $20,000 in savings, but be underwater on their mortgage with $50,000 in “negative equity” – owing more than the house is worth. Thirty-seven percent of people younger than 35 had no positive net worth in 2009, up from 19 percent of this same age group in 1984.

More older people are working; fewer young people are.

As people get older, they usually start to wind down their careers and retire, but one unexpected side effect of the recent recession has been a larger number of older Americans re-entering the workforce. Sixteen percent of Americans over age 65 are working, up from 12 percent in 2002.  Fifty-four percent of these senior workers said they work because they want to, not necessarily because they need the money.

Meanwhile, younger Americans age 20 to 34 have seen a steep drop in their employment rate. Sixty-nine percent of Americans age 20 to 34 are in the workforce, down from nearly 78 percent in the late 1990s. This gap in employment participation is another cause of the “age gap” in Americans’ net worth. Young people have been hardest hit by America’s lack of jobs, with an unemployment rate of 11.7 percent for young adults.

How can young Americans learn from older generations and build more wealth for the future?

In part, the “Age Gap” is due to long-term cyclical trends in the U.S. economy. Many older Americans bought their homes years before the housing bubble, while many young Americans bought homes right at the bubble’s peak. Many older Americans entered the workforce when jobs were plentiful, while many younger Americans are looking for entry-level jobs that no longer exist. Timing and luck have something to do with the story of the Age Gap.

But overall, all of us “young people” today (I’m 32) need to redouble our efforts to do what is within our control: spend less than we earn, establish good credit, live within a budget, get an education and build valuable career skills, and maintain positive momentum toward our long-term career and financial goals.

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What's the Lowest Credit Score I Can Have and Still Get a Loan?

By Bill Rice

One of the biggest hurdles in getting a loan approval is your credit score. Often the lenderpulling (i.e. requesting and reviewing) your credit score from a major credit bureau is the first step in any lending process.

Naturally, this leads to the question…

“Is my credit score good enough?”

This is often the major weighing question on most consumers’ minds as they apply for a new credit card, buy a car, apply for a new mortgage, or attempt to refinance their current mortgage – creating a lot of unnecessary anxiety.

Let’s see if we can relieve some of your stress.

How Low Can You Go?

Most credit scoring models range from 300 to 850.

Here’s a little stress relief right off the bat – it’s really, really hard to hit the bottom (i.e. 300) on this one. It’s kind of like the ACT or SAT; you get some points just for getting your name right. In fact, you are more likely to have no credit score at all, usually because you have no credit history, than to have a 300 credit score.

Relief… you’re probably not at the bottom of the barrel. Only 7 percent of the total US population is between 350 and 549. Just slightly above that mark and you are usually in the hunt for getting a loan.

[By the way, have you checked your credit report and score lately? Both are free from Quizzle.com.]

Qualifying for Credit Cards

Credit cards are usually the easiest “loans” to qualify for regardless of your credit score. However, like all credit lending, the worse your credit score is, the higher your interest rate will be.

With credit cards, you can probably get a reasonable interest rate and credit limit with a credit score above 650. Below 650 and you will need to look into a secured credit card, meaning it is “secured” by your cash – sort of like a debit card.

If you’re looking for a credit card to give you rewards or cash back, then you need to get that credit score above 700, preferably 725+.

Qualifying for a Car Loan

Qualifying for a car loan with a low credit score is not too difficult, but it will be more challenging than a credit card.

Like credit cards, you can probably find a way to finance a car with almost any credit score. The trade off will be a higher interest rate and potentially a hefty down payment up front.

In most cases, even with a low 500 credit score, you can come away with a manageable car loan. However, the interest rate will probably be above 10 percent and your down payment may be higher than you can afford without help from friends and family.

Wondering about the incredible deals you hear on the TV commercials? The zero down, 0 percent interest offers – those typically require a credit score above 700.

Qualifying for a Mortgage Loan

Now down to the hard stuff. Mortgage loans, because of large dollar amounts and many years of repayment risk, have much tougher credit requirements.

That being said, tough economic conditions and a stagnant housing market has created some special opportunities in affordable housing and unique FHA financing that allows even a marginal credit score to qualify.

FHA mortgage loans are some of the most popular financing in the current mortgage market. With credit scores as low as 580, under specific conditions and with certain restrictions, you can probably qualify for a mortgage. However, these programs are constantly changing and often have restrictions – just like credit cards and auto loans.

To get more traditional mortgage loans, your credit scores need to get above the 620 to 640 range.

If you want to get the best interest rates, you need to raise your credit score into the 740+ credit score range. Are you starting to see a pattern here?

Credit Qualifying for Loans

Hopefully, this has given you some general guidelines for how low your credit score can be and still get a loan. Keep in mind that your lender ultimately determines their credit guidelines – so, as they say, “your mileage may vary.”

Ultimately, your goal should be to continually improve your credit score by responsibly using and paying back the credit loans you qualify for and get. As a result, your future loans will be easier to qualify for and have better interest rates and terms.

What has been your experience? Did you start building your credit with a low credit score? What kinds of loans did you get first?

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