The Mortgage Bankers Association’s Research Institute for Housing America (RIHA) released a report that explores how older Americans’ cognitive health impacts their ability to make sound decisions about their homes and finances.
RIHA used data from the University of Michigan’s Institute of Social Research 2012 Health and Retirement Study, which examined the housing, functional, health and cognitive status of Americans 65 years of age and older.
“By the time individuals are arriving into traditional retirement ages, when many important financial decisions are made, cognitive skills are already in decline as part of normal cognitive aging,” RIHA noted. “This report finds a strong correlation between housing behavior and the cognitive decline of older Americans.
“Importantly, normal cognitive aging also correlates to a potential borrower’s ability to make decisions relating to their own housing and financial situation.”
Homeownership rates fall with age
The study found the homeownership rates for older Americans (ages 45 to 64) peaked in 2004 and then declined during the financial crisis and the Great Recession.
On the other hand, homeownership rates for older Americans (65-plus) remained steady throughout the same time period due to comparatively lower mortgage debt.
However, homeownership rates fall with age, as older people tend to become renters or live rent-free with children as it becomes harder to take care of their day-to-day home and financial needs on their own.
“Difficulty with money management is roughly the same in the mid-70s as it is at age 65, and then begins to rise around age 80,” the report indicated.
At age 80, people are 6.8 percentage points more likely to have difficulty in managing their money than at age 65. At age 90, the rate rises to 26.4 percentage points. As these difficulties rise, the rates of homeownership drop.
At age 80, 91 percent of those who were homeowners at age 65 are still in their homes. By age 90, the rate drops to just under 70 percent.
Money and memory
According to RIHA, difficulty in money management and a dip in homeownership is part of the natural decline in memory that most older Americans experience.
In 2012, 28 percent of homeowners and 36 percent of renters 65 and up rated themselves as having fair or poor memory.
Furthermore, 7 percent of homeowners and 16 percent of renters self-reported an official medical diagnosis of memory disease. Lastly, the number of older homeowners who have a memory disease jumps to 20 percent by age 90.
This chart shows the increasing difficulty with memory that older Americans experience as they age.
An aging population
According to the study, there will be nearly 62 million Americans over the age of 60 by 2024. RIHA hopes this analysis will help the real estate industry better understand how they can serve this growing population.
“This study highlights the fact that memory loss in particular raises particular challenges for the financial well-being of older Americans and suggests that we may need to reassess how the mortgage industry designs, originates and services financial products for seniors,” said Lynn Fisher, Ph.D., Executive Director of RIHA and MBA’s Vice President for Research and Economics.
