Bryan Caplan  

Family, Transfers, Pride, and Shame

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Turning Back the Financial Clo... A Recalculation Data Point...
Contrary to popular belief, the elderly financially support their kids, rather than the other way around.  This was true in hunter-gatherer and peasant societies.  A neat piece in the JEP shows that it was also true in the U.S. in the 1980s.  Using the Survey of Consumer Finances for 1983-5, the authors look at who gave and who received gifts of $3000 or more.  Survey says:

intergen.jpg

Donors and recipients agree: Money flows from old to young.  According to donors, parent-->child giving is almost ten times as big as child-->parent giving.  According to recipients, parent-->child giving is over twenty five times as big as child--> parent giving.

Scholars in this area often say that people exaggerate how much money they give.  But that's not quite what we see in the data.  For child-->parent transfers, reported giving is much larger than reported receiving.  For parent-->child transfers, however, the pattern reverses: Recipients say they got more than donors claim to have given.  In each case there is roughly a 10 percentage-point discrepancy.

This could just be sampling error, but I'm tempted to interpret.  It looks like older people feel a bit embarrassed to either subsidize their adult children, or accept their kids' charity.  Younger people, in contrast, feel better about both helping and receiving help from their parents.

When I mentioned this to Alex Tabarrok, he observed that parents are proud to put their kids through college.  That sounds right to me.  But in terms of stigma, there's a world of difference between paying your son's tuition and helping a grown man pay his bills.


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COMMENTS (15 to date)
Devin Finbarr writes:

You're forgetting about Social Security and Medicare.

Niklas Blanchard writes:

I would also say that there is a different stigma between "gift exchange", and monetary exchange within the family (by leaps and bounds, even).

College could be considered "gift exchange", although in a lot of middle class (and especially upper class) families, it's simply the expected path through life.

As an example to illustrate my point, your family would probably quickly break apart if you charged your child $5 for breakfast every morning. Similarly, "family" breaks down into "business" when the elderly pay "rent" to live with children.

q writes:

sometimes it's just tax arbitrage.

other times it's a kind of social insurance.
i'm not surprised the elderly have to overpay for this insurance. they have no leverage.

Nathan Smith writes:

In America, we have a tradition of the "self-made man," of a person's station in life being a function of his own efforts and not fortunate circumstances of birth.

Of course, our immigration restrictions make a mockery of the principle. If we really wanted to deserve any moral credit for meritocracy we'd let people come and make their fortunes here, if they can, regardless of the accident of where they were born. But I digress.

I can see why parents would be ashamed to subsidize adult children. And maybe this argument will be justly interpreted as a rationalization of my own slowness in getting a paying career off the ground... However, I think the structure of earnings is really changing so that it makes sense to alter the structure of inter-generational transfers and have parents partially support their kids a good deal longer. Earnings as a function of age has been shifting so that old people earn a lot more relative to young people than they did 30 or 50 or 70 years ago. It seems that to be productive these days just takes a lot more human and social capital than it used to, and it takes a long time to accumulate that.

Sadly, this will undermine the social principle that a man's station in life is a function of his efforts rather than his birth. Having affluent and generous parents may become more important to ultimate success in life. But then, with the Immigration and Naturalization Act of 1924 America broke faith completely with the egalitarian ideals of Jefferson, so there's not much use crying over that spilt milk.

Bob Montgomery writes:

Is this surprising? This is the standard argument, that children are no longer a net benefit and that's why birthrates have fallen. Does anyone argue that this has happened since 1985?

I'd like to see more evidence from pre-1900, pre-1800, etc.

mick writes:

The peasant study assumed that the parent would have the kid at 20 and live until 85.

My religion teacher from Morroco was born when her mother was 14 and this was not at all unusual for her culture. Additionally social security in the 1930's assumed that people would die sometime soon after age 65.

Acad Ronin writes:

My wife and I cover our children's IRA payments. Neither child makes enough to be able to take full (any) advantage of the tax deduction, and we do not qualify. Furthermore, by building their IRAs early, they get to benefit from compounding. Still, we hope they will be our backstop later, should we need it, as I am for my father.

Dan Weber writes:

I'm having trouble buying this.

1. Are we really seeing elderly parents giving to adult children, or is this including parents giving money to minor children (say, college)?

2. Are we only sampling populations where there is enough money to be donated? In a community of 10,000 families, we might have 100 parents giving huge gifts to children and 5000 children giving smaller gifts to parents. The total given each way is about the same, but since we select only in places where gifts happen, it looks like the "average donation" from parents to children is bigger.

Or, are the numbers the same if you take out the richest 5% of families?

A lot of the "gifting" to parents won't be monetary, anyway. If my MIL moves in with me and my wife, we won't consider her rent-free living a gift.

v writes:

Does this include paying medical bills? (Or fixing their car or paying for plane tickets?) Because my parents don't give cash to my grandparents, they pay for their expenses....

Floccina writes:

I agree with Devin Finbarr you need to include Social Security and Medicare.

BTW your data and logic tell me that the rich and middle class do not need SS or Medicare. So why does SS Collect enough from workers to pay out more money to the rich and middle class than they do to the poor? It is a scam FDR worked on most Americans to keep us from killing his program.

Caitlyn Nesbitt writes:

I firmly believe that parents give way more to children then they ever recieve back. I try not to take for granted the fact that my parents pay for my tuition, cell phone, car insurance and much more. I know as I start taking over these payments I will never fully be able to give my parents as much as they have given me.

Now on the other hand my poor grandmother is stuck in a nursing home in which her son put her there without her wanting to go. I feel like she gave him everything as a child and this is the thanks she gets, being stuck in a home with none of her belongings because he decided to sell everything. I fear that children will not appreciate the things their parents sacrifice and work so hard to get them. It's a sad sad day knowing u worked so hard for nothing in return.

So I believe that children should always try to give back to their parents as much as possible.

Dr. T writes:

How many of those money transfers to adult children were for tax or government benefit purposes? Not necessarily to minimize inheritance taxes, but for future Medicaid nursing home eligibility. Some elderly steadily transfer assets to their children so that when nursing home time rolls around, they don't have to spend much money to drop below the Medicaid benefit cutoff.

A different reason for giving money to adult children is that financially secure elderly would like see their children and grandchildren benefit from money given now. They obviously won't see them benefit from their estate after they die.

HH writes:

I think it's easy to explain why money flows from young to old. Economically, older people have had way more time to accumulate wealth which to transfer, and with age-based government programs they have a lesser need for that wealth. Evolutionarily, older people who no longer plan on reproducing are genetically better off supporting their children and grandchildren than owning wealth that won't improve their reproductive futures.

The more interesting question Bryan's asking is why the transfers are reported differently. I think he's on the right track: a parent can make his child seem better if they "made it on their own." Children, on the other hand, want to signal gratitude and to make his family wealth seem higher. Their different perspectives might lead them to value and thus emphasize these things differently.

It's also possible that parents and children consider different things to be transfers: if children consider, say, college tuition a transfer but parents generally don't, they will estimate transfers differently.

Ted Craig writes:

You're looking at this all wrong. The money isn't gifts. It's indirect payment for services rendered. I'll give you money now and you make sure to take me to the doctor or at least visit me in the old folks' home. Not everybody gets the full value for their payment, but that's true in any labor exchange. I'm not saying children are mercenary. I'm just saying it's part of the unspoken family agreement many of us live under.

Bob Murphy writes:

Bryan, putting aside my strong disagreements with your take on all this, I think you are overstating when you say that in peasant societies, "the elderly financially support their kids, rather than the other way around." What your previous link claimed was that the rate of return on investing in your kids was really low, right?

I.e. I think the paper you cited in your last post, showed that kids did indeed support their elderly parents in peasant societies, but that they didn't give enough to justify (from a pure monetary POV) the parents' earlier transfers to the kids.

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