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Parents’ economic support of young-adult children: do socioeconomic circumstances matter?

Abstract

We assess how the support parents provide to young adults as they leave school and begin working is related to their family’s socioeconomic circumstances. We do this using an innovative Australian data set which merges survey and administrative data. The survey data inform us about intergenerational co-residence and financial gifts and the administrative data about the family’s welfare receipt history. We find that disadvantaged young people are more likely to be economically independent of their parents than are their more advantaged peers. This disparity is larger for financial gifts than for co-residence and increases with age. Moreover, there is a complex relationship between parental support and participation in study and work. We find no evidence, however, that a lack of parental support is the source of the socioeconomic gradient in either studying or employment. These results are important in eliminating one potential pathway through which socioeconomic disadvantage limits young people’s outcomes.

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Fig. 1

Notes

  1. See, for example, Bernheim et al. (1985), Cox (1987), Cox and Jakubson (1995), and Guiso and Jappelli (2002) on financial transfers and Wolf and Soldo (1989) and Ermisch and Di Salvo (1997) on co-residence.

  2. More recent research has also considered the effects of time transfers, particularly in the form of care for grandchildren, between mothers and their adult daughters (e.g., Dimova and Wolff 2010).

  3. See Cobb-Clark (2008) for a review of the literature surrounding the co-residence decision.

  4. See, for example, the predictions in Ermisch (2003), Manacorda and Moretti (2006), and Laferrère (2006) regarding the relationship between parental income and young people’s propensity to live at home.

  5. For more information about the project and data, see http://youthinfocus.anu.edu.au and Breunig et al. (2009).

  6. Data from mothers are not used in this analysis.

  7. Note that the Child Care Benefit is not means-tested and that only families in the top 20 % of the income distribution are ineligible for the Family Tax Benefit. To place these payments in context, similar benefits in the USA are provided to families through the tax system in the form of standard deductions for dependent children and child care rebates.

  8. Comparing the YIF youth sample with the Australian Census data suggests that the administrative data capture about 98 % of the youths born in the period (Breunig et al. 2009).

  9. Following best practice (see Groves et al. 2004), approach letters, incentive payments, repeated callbacks, and CATI were all used to maximize response rates. More than 96 % of young people completing the survey consented to having this information linked to their families’ administrative public benefits records.

  10. At the time of their wave 1 interviews, 92 % of youths were 18 years of age, while 4 % had turned 19 and the remaining 4 % had unknown ages. At the time of the wave 2 interview, 76 % of youths were aged 20 and 21 % were aged 21 with 3 % having unknown ages.

  11. Note that the YIF administrative data contain the incidence, but not the amounts of income support receipt.

  12. The YIF survey asks youths to report about financial transfers received from their parents and “anyone else.” For simplicity, we refer to these amounts as “parental” support. Youths are also asked if they are expected to pay back any of this money, and we disregard the entire amount if they answered yes to this question. In an earlier version, we considered the entire amount a loan if they answer yes to this question, and we distinguished between receiving gifts, receiving loans, and not receiving financial support (Cobb-Clark and Gørgens 2012). Likelihood ratio tests indicated that separately identifying financial loans from no financial support did not improve the overall fit of the model of youth activities.

  13. Some young people live with relatives or other (older) adults. We determine whether they “co-reside” or “live independently” based on whether they consider any of the adults in their household a “parental figure” and on whether they consider themselves to be living independently or not.

  14. The single exception is the group who live independently and whose families received extensive welfare; they have a lower probability of not working if they receive gifts.

  15. The single exception is that 18-year-old youths experiencing moderate socioeconomic disadvantage who do not receive financial gifts are more likely to be studying if they co-reside rather than live independently.

  16. The exception is young people whose families never received welfare have a higher probability of not working if they receive full support.

  17. Note that while some of the differences across categories of socioeconomic circumstances in Table 4 are individually statistically significant, they are not jointly significant (see Table A3 in the ESM).

  18. There are minor differences relative to Table 2 due to dropping observations with missing values for covariates.

  19. As mentioned earlier, the specification tests in Table A3 in the ESM show that the coefficients representing socioeconomic circumstances are not jointly statistically significant in the model for study and employment outcomes at age 20. The results discussed in this section concern a different metric, namely, predicted outcomes, and confirm that socioeconomic circumstances play a limited role.

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Acknowledgments

This research was supported in part by a grant from the Australian Research Council (DP0989021).

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Correspondence to Deborah A. Cobb-Clark.

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Responsible editor: Junsen Zhang

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Cobb-Clark, D.A., Gørgens, T. Parents’ economic support of young-adult children: do socioeconomic circumstances matter?. J Popul Econ 27, 447–471 (2014). https://doi.org/10.1007/s00148-013-0484-6

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Keywords

  • Co-residence
  • Financial gifts
  • Socioeconomic disadvantage
  • Youth outcomes

JEL Classification

  • J12
  • J13
  • J22
  • J24