Posted on: Monday, October 15, 2001
The September 11 attack | America strikes back
Many sliding deeper into debt
USA Today
Layoffs are sinking families already burdened by debt. The bear market has clawed workers into postponing retirements. Retirees struggle with household budgets on fixed incomes withered by low interest rates.
In addition, Americans are going into the downturn with record debt. Calls to the nation's largest credit-counseling center are up 10 percent to 20 percent from a year ago, according to the National Foundation for Credit Counseling.
Credit-card delinquencies rose to 3.93 percent of all accounts in the second quarter, the highest since the American Bankers Association started keeping data in 1980. And 4.63 percent of U.S. homeowners were at least 30 days behind on mortgage payments, a nine-year high.
More than 200,000 layoffs have been announced since Sept. 11, and the numbers are expected to rise. In Hawai'i, through last week, nearly 12,000 workers, many from tourism-related businesses, had filed new unemployment claims since the attacks.
Retirees who rely on interest from bank CDs and money market funds have seen their income sliced in half since last year. Interest on the average money market fund is 2.4 percent, a 26-year low.
Those planning to use stock-market investments to pay for college or fund retirement have seen their portfolios slashed in the past year. The average stock fund is down 19.4 percent since the beginning of the year.
According to a USA Today/ CNN/Gallup poll conducted Oct. 5-6, prior to the start of bombing in Afghanistan, 36 percent of Americans are afraid they won't be able to maintain their standard of living over the next 12 months. Some 29 percent worry they or their spouse may lose their job.
"You turn to the right, and you've got credit card bills," said Matt Coffin, chief executive of LowerMyBills.com, a Web site that helps people reduce expenses. "You turn to the left, and your stocks just plunged. You turn back to the right, and you've lost your job."
Coming so soon after a period of unprecedented prosperity, this downturn caught many unprepared. And credit counselors say many Americans are ill-prepared to weather prolonged unemployment.
In 2000, consumers pushed into credit counseling carried debt that on average accounted for 88 percent of income, said Kathy McNally, a vice president at the credit-counseling foundation. And the debt load is growing, she said.
While many economists anticipate a recovery next year, the downturn's repercussions could last much longer.
Some 23 percent of white-collar workers say the market decline has forced them to change plans for retirement, according to a recent survey by executive search firm NetShare. Another 20 percent said they would postpone retirements.
Two years ago, David Johnston, 51, of Swarthmore, Penn., made the jump to the tech sector. He left his job as an ad exec for a multi-national company to handle marketing for a tech firm. He shifted much of his investment portfolio into tech stocks.
In June, Johnston was laid off. Many of his once high-flying stocks now trade in the single digits. And while he's confident he'll find work, he's abandoned his dream of starting a business at age 55. He's planning instead to find a job that will provide enough money to support his three children.
The downturn, he says, "has literally changed the way I look at the world."
Retirees who rely on interest income to pay the bills may be among the hardest hit.
The Federal Reserve Board has cut interest rates nine times this year. This has meant interest rates on conservative investments that many retirees favor, such as money market funds and certificates of deposit, have fallen.
Jim Thompson, director of shareholder education for the AARP/Scudder Investment Program, likened the combination of bear market and declining interest rates to "working for a company that's going through tough times and it tells everybody they're getting a 10 percent pay cut."
Individuals who went into retirement with most of their money in stocks face the prospect of selling stocks and mutual funds at a loss to pay the bills. Others may have to find part-time jobs to make ends meet, Thompson says.
Even retirees who are in good financial health are struggling with unappealing choices. Larry Elliott of Decatur, Ind., who retired 10 years ago from GTE, wishes he had more money in CDs. "I'm mainly in stocks at this point, unfortunately."
He added: "If I could make up my losses in the next two years, I'd be happy."
