Sharp rise in number of borrowers among older people

Many analysts, including the Riksbank, the IMF and the European Commission, have pointed out that high and rising household indebtedness has contributed to making Swedish households vulnerable and that this poses a serious threat to financial and macroeconomic stability in Sweden. The report "Indebtedness in various age groups in Sweden" analyses the development of debt using microdata about the loans of Swedish individuals.

There is a clear lifecycle pattern in the debt-to-income ratio (and its components), i.e. individuals firstly increase their debt-to-income ratio and then, around the age of 35, it decreases as a result of a combination of increased income and lower borrowing. Between 2010 and 2016, the lifecycle pattern has become less obvious as individuals over the age of 35 have increased their debt-to-income ratio the most.

During the period studied, changes in the number of people and the proportion of borrowers in the various age groups, if anything, have offset the increase in the debt-to-income ratio. This is primarily due to an increase in the number of borrowers in older age groups that have a lower average debt-to-income ratio. At the same time, the number of borrowers between 30 and 40 years old, i.e. the group with the highest average debt-to-income ratio, has decreased.

The increase in the number of older borrowers is due both to demographic changes (a higher number of older people) and to an increase in the propensity to borrow (higher proportion of borrowers) in older age groups.

The increase in the number of borrowers over 65 years old is particularly substantial. For these individuals, the debt-to-income ratio has also increased sharply and total debt has risen by over 100 per cent. This upturn is due to an increase in the size of the group, an upturn in the proportion of borrowers in the group and the fact that borrowers are borrowing more.

The report also discusses what the changes in the development of debt mean for financial stability.

The number of borrowers around the age of 35 – the group that borrows the most – has decreased. This could imply lower risk. However, those who are borrowers are borrowing more, which may pose a greater financial risk.

The increase in the debt-to-income ratio among older borrowers could imply a greater risk primarily for those above retirement age. These people may find it difficult to increase their income if, for example, the cost of borrowing rises. It is not obvious, however, that the risks in this group have increased. The rise in debt could reflect the fact that borrowers are realising an upturn in asset prices, which does not necessarily mean that the risks have increased. Individuals have, however, become more sensitive to changes in borrowing costs, as housing units are illiquid assets, and can therefore not be used to pay day-to-day costs.

The Staff Memo was written by Johan Eng Larsson, Kerstin Hallsten and Matilda Kilström. The authors work at the Riksbank's Financial Stability Department and at the Institute for International Economic Studies, Stockholm University.