Parental Income and Wealth Loss and Transfers to Their Young Adult Children

Abstract

As young people transition to adulthood, many rely on financial support from their parents to complete schooling and to live independently. Evidence suggests that there has been a gradual lengthening of the time young adults take to transition to adulthood. Young people attempting to move out of their parents' home, complete college, or enter the workforce during the Great Recession faced uncertain economic times, increasing their need for financial support. At the same time, the income and wealth losses experienced by young adults' parents may have disrupted transfers from them. We analyze the impact of large and unexpected declines in parents' income and wealth during and immediately after the Great Recession on monetary transfers to their young adult children using data from the Panel Study of Income Dynamics (PSID) and the PSID Transition to Adulthood study. We find parents' financial support of their young adult children declined during the Great Recession. The likelihood of receiving a transfer declined from 74% in 2005 to 57% in 2009. Parents' loss of income was a factor in the amount of decrease but on average was relatively modest - a $10,000 parental income loss decreased transfers to their adult children by $109. However, parents experiencing large declines in income, those at the 75th and 95th percentile of income loss, reduced transfers to adult children by $1,150 and $1,700, respectively. Declines in parental transfers that reduce college completion rates, increase student loan debt and decrease likelihood of homeownership may have long term consequences for financial well-being.