Solving the Family-Support Puzzle

If benefits from government entitlement programs were reorganized or reduced, would families make up the difference? Researchers at RAND and UCLA have been trying to piece together the family-support puzzle by examining economic assistance that the middle generation of Americans—those born between 1931 and 1941—provides for its elderly parents and adult children. Their research indicates that middle-aged Americans, like government entitlement programs, buffer the elderly and young-adult populations against economic hardship. Whether families could compensate for reductions in entitlement programs is a question that will have to await further research.

The researchers, Kathleen McGarry and Robert Schoeni, based their analysis on data from the Health and Retirement Survey, which was started in 1992 by the University of Michigan with support from the National Institute on Aging. With a sample size of 12,654, the Health and Retirement Survey represents the most comprehensive panel survey of the middle generation. McGarry and Schoeni's research represents the first published analysis of data on transfers (gifts and loans) from the Health and Retirement Survey.

Economic Assistance

Discovering how much assistance families provide their members and what appears to motivate this assistance is key to understanding the interactions between government and family support: whether the government displaces family support and whether the family could replace government support. A good place to start the search for this information is with transfers made by the middle generation, which is believed to make more transfers than any other. The Health and Retirement Survey is the best data source on the subject.

Health and Retirement Survey data show that middle-aged Americans provide more support for their adult children than for their elderly parents. One of the most important forms of support they provide is "coresidence" or shared housing. Sixteen percent of the middle generation's adult children (18 years and older) live with their middle-aged parents, but only four percent of the middle generation's elderly parents live with their middle-aged children. The economic value of shared housing, although not quantified in this study, is substantial.

Cash assistance is another important form of support the middle generation provides (see Figures 1 and 2). Thirty percent of the middle generation's coresident adult children received transfers of $500 or more per year from their middle-aged parents. Among those who received transfers, the mean value was $4,979 in 1992 dollars. By contrast, 17 percent of the middle generation's coresident elderly parents received transfers of more than $500 per year from their middle-aged children; the mean dollar value was $2,128.

Coresident parents and children are not the only ones receiving cash assistance. Fourteen percent of the middle generation's non-coresident adult children received transfers of $500 or more per year; the mean value was $3,061. Seven percent of the middle generation's non-coresident elderly parents received such transfers; the mean dollar value was $2,125.

Although middle-aged parents give substantially to their adult children, they do not give equally. Middle-aged parents with more than one adult child do not always give to all their adult children in a year, and if they do, they usually do not give equal amounts. The data suggest that these inequities exist because parents give more to their children who are most in need. Children who receive assistance have lower incomes. They are on average younger, less likely to own a home or to be married, and they are more likely to be in school. The data also suggest that parents who give are more able to do so. Parents making transfers of $500 or more are better-off financially. They are also more likely to be white, to be educated, and to have fewer children.

Transfers from middle-aged children to their elderly parents also appear to be based on economic ability and need. Middle-aged children who transfer $500 or more to their elderly parents are better-off financially, while the parents they give to are worse-off. These parents are less likely to own a home, more likely to be poor, more likely to be female and unmarried, and more likely to be black than white. Overall, more dollars are transferred to worse-off parents and larger transfers are made by better-off children.

Research Implications

The research suggests that families are an important source of economic support and that they base their support decisions, at least in part, on economic ability and need. To some degree, the middle generation acts like government entitlement programs by buffering elderly parents and adult children against economic hardship.

Although the research does not determine how entitlement programs influence family transfers, it provides a piece of a puzzle that future studies can complete. Further research could identify the relationships among government programs, individual resources, and family support by analyzing Health and Retirement Survey data along with data from other surveys (e.g., The Panel Study of Income Dynamics and The Asset and Health Dynamics Survey of the Oldest Old). Completing this picture will give policymakers the information they need to make sound decisions on the size and structure of entitlement programs.