A Bank of Jamaica (BOJ) financial stability report stated that the Jamaican economy suffered a drastic decline in economic activity in 2020 due to the pandemic. Both consumer and business confidence were low. Household debts recorded growth of 3.4 per cent. The household debt to disposable income ratio was 71.5 per cent as disposable income declined. Rising household debts can slow economic growth in the long term; therefore, macro policies are needed to spur economic growth.

Seniors retiring with debts

Based on a BOJ 2018 report, for every $100 of household income, $56.60 went towards repaying personal loans. Studies show that just over 38 per cent of households have at least one adult aged 60 years and above. There are adults who are entering retirement with increasing debts.

This is also a global trend. Common long-term debts are mortgages and car loans. Managing debts in retirement can lead to financial insecurity. Medical bills and student loans can contribute to ballooning debts in retirement. Short-term loans include pay day loans, personal loans and credit cards. Some pre-retirees contend with varying kinds of short-term loans. Short-term borrowing usually attracts high fees.

How debt is managed in this phase of life will determine the quality of life in retirement. Credit card management is crucial. Paying minimum balances, late fees, and exceeding the credit card limit attract additional fees. The practice of using credit cards for cash advances increases risk of short-term liabilities being extended into the retirement years. This can have implications for pensioners who are faced with a fixed and often reduced income in retirement.

Overcoming debts

If you want to have a retirement that will give peace of mind, there are some steps that can get you there. Begin where you are. If you are a senior or pre-retiree, acknowledge where you are and begin to plan for the retirement years.

Don’t dwell on the mistakes of the past. If you have several credit cards, seek to clear the card with the highest interest first, and at the same time make the minimum payments to other credit cards. Clearing a debt at a time will give peace of mind.

Seek to save and invest. Create a spending budget. Cut back on spending on utilities, eating out, etc. It’s our habits that counts not the money. Good financial habits will invite more money. From your monthly earnings decide how much you need to save or invest, then spend from what’s left.

Be in control of your money. Develop good money habits. It’s not how much you earn, it’s how much you save. Save what you can afford. It’s the consistency that is important. Ensure you have an emergency fund; plan for unexpected extended expenses. Have a rainy day savings account for unforeseen minor expenses. Emergency funds and rainy day accounts must be kept in low-risk saving accounts. This ensures that your money is available when a need arises. Your deposit on a house in a few months or in a year is a short-term goal; therefore, funds should be in a savings account or government bonds, not stocks.

Money that you don’t need for the next five to seven years should be invested. Invest in stocks for the long term. It gives the highest return over time. Investment in stocks increase the purchasing power of your money and beats inflation.

You should consider purchasing a pre-owned or used car instead of a new car. If your mortgage is affordable, continue making your payments. Some mortgages can be paid even in retirement. If you can no longer afford your mortgage, examine the option to downsize or sell. Life insurance is important if you have dependents. Consider term insurance and keep cost down.

Review your retirement plan

Do you know how much you need for your retirement? Research shows that those who plan for retirement, and are persistent, achieve far more than non-planners. Financial literacy is a key factor to overcome indebtedness and achieve financial freedom. The financial literate is more likely to achieve their retirement goals.

A recent study reveals that those who plan for retirement are more likely to have a retirement account and request financial advice. BPM Financial Limited is an organisation that has been leading the way in financial literacy in Jamaica. Individuals who have an appreciation for financial literacy and seek financial advice are better able to have peace of mind in retirement. Alan Greenspan, economist and former chairman of the US Federal Reserves, said “The number one problem in today’s generation and economy is the lack of financial literacy.”

Grace G McLean is financial advisor at BPM Financial Limited. Contact her at gmclean@bpmfinancial and visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com.