Total debts held by over-55s are forecast to swell by £10bn over the next year to £236bn, up from £226bn last year as consumer confidence returns, according to new analysis.
The study, by More2life and the Centre for Economics and Business Research, suggests that returning optimism will result in lead to higher spending, particularly on big ticket items like cars and holidays.
In a poll of over-55 year-olds carried out in April, 27% said their financial situation has worsened since March 2020
The research also shows that 76% of the overall debt level in 2021 will be driven by those aged 55-64, who are expected to borrow £180bn by the end of this year, a rise of £9bn since 2020.
Today’s findings contrast with More2life’s research last year which suggested that debt amongst over-55s would fall to £207bn in 2021 as uncertainty caused people to delay purchases and cut back.
However, with the economy recovering, confidence has returned, particularly in the housing market where demand is significantly higher than in pre-pandemic times.
The research also shows that the level of unsecured debt, such as credit card debt and bank loans, is set to rise by 1% this year.
By the end of 2022 it forecasts that unsecured debt levels will have risen by a further 10% as older generations borrow in order to navigate the fallout from the Covid crisis.
In total, the research suggests that over-55s will owe almost £20m in unsecured debt next year, with £4m of this borrowing in the form of credit card debt.
The increase in debt expected over the next 18 months follows a period of financial uncertainty for many older households.
Over a quarter (27%) of over-55s say their general financial situation has worsened since March 2020 with the employed hit harder than the retired.
Among part-time workers, 43% said they had seen their financial circumstances worsen compared to 15% who said their situation had improved.
This could be attributed to these individuals being put on furlough or seeing their wages cut.
Figures from the Office for National Statistics reveal that 28% of furloughed employees in the UK are aged 50 and over, and this cohort were more likely to report working fewer hours than usual because of Covid-19 between December 2020 and February 20211.
Conversely, 17% of over-55s said their general financial situation had improved since the start of the pandemic.
The primary reason over-55s gave for their improved financial position was a drop in spending, with 68% of respondents agreeing this was the key factor.
More2life chief executive Dave Harris says: “There’s no doubt that the events of the last 15 months have been both unexpected and challenging for most of us.
“And the older generations are no exception, with more than a quarter of over-55s saying they have seen their financial position deteriorate due to the pandemic.
“However, as our research shows, older customers are also relatively optimistic about the UK economy’s recovery, with discretionary and ‘big ticket’ spending set to rise.
“As a result, borrowing among over-55s is expected to increase to higher levels than previously forecasted.
“Yet, despite this confidence, there is no doubt that some over-55s are struggling or will struggle as furlough ends and life returns to a more normal pattern.
“Our research suggests that they may find themselves turning to short-term forms of debt, such as credit cards, over the next year.
“With the potential for this borrowing to grow to unmanageable levels, it is important they are made aware of all of their options.”