Just How Much Are Parents Bailing Out Their Student-Debt-Addled Kids?

By Neil Shah

The rising mountain of student debt is weighing down America’s young adults in myriad ways. It’s also a burden on their parents, who are quietly acting as economic supports by helping their adult children out with money, according to preliminary findings released Friday at this year’s Population Association of America conference in Boston.

Nearly 40% of U.S. parents of adult children 18 years old and up gave money to their children for education, according to the latest data from the Panel Study of Income Dynamics, the world’s longest-running nationally-representative household panel survey.

Parents who got help themselves are likelier to help their children. Some 66% of parents of adult children 18 years and up who got help from their own parents gave money to their kids, compared with only 30% for those who didn’t get money from their own parents.

All told, just under a quarter of all U.S. adults have received money from parents for education, the study found.

We’ve seen “a tremendous rise in student debt,” says Joseph Hotz of Duke University, one of the researchers behind the project. “The question is, is the family basically paying for some of the consequences of mortgage and student debt?”

America’s $1 trillion-plus student-loan burden was a key theme of this year’s PAA conference, with researchers blaming high debts among the young—as opposed to the health of the economy—for stunting their ability to reach typical milestones from moving out of parents’ homes and getting married to having children and moving to the suburbs.

The study, “Family Rosters and Transfers of Time and Money: New Evidence from the 2013 Panel Study of Income Dynamics,” is just an early taste of what’s to come from Mr. Hotz and the project’s other researchers, which include (the now deceased) Suzanne Bianchi and Judith Seltzer at UCLA; and Vicki Freedman and Robert Schoeni at the University of Michigan.

The PSID, which started in 1968 and is directed by the University of Michigan, gathers data on families and their descendants over time. However, relatively little is known about financial transfers between members of families—an important issue given the economic stress the Great Recession put on families. The last time questions about transfers were asked was 1988.

For the latest, 2013 iteration of the PSID, new questions were asked to get a better sense of the often complex social and financial transfers between parents and older children—whether it’s parents giving to adult children or vice versa.

“Now we will be able to see if an adult child bought a house, and if a parent gave them money, and where—or if a parent gave money for college, and how much,” the study’s Ms. Seltzer said.

Less-comprehensive research already suggests older Americans are playing a vital role as a financial lifeline for adult children whose fortunes sank in the Great Recession.

Roughly one in four adults 25 years old and over got $100 or more from parents in 2011, according to an analysis by Ms. Seltzer of Census data and the June 2012 Survey of Consumers. The average gift was $6,500.

Better-educated parents, she found, were more likely to give: Nearly 37% of adults with college-educated parents received

http://blogs.wsj.com/economics/2014/05/02/just-how-much-are-parents-bailing-out-their-student-debt-addled-kids/