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Money Culture

Parents Cut Back Aid to Kids in Downturn

When the economy tips into a recession, as it is doing in reaction to the COVID-19 pandemic, the question of whether parents will give financial help to their adult children could conceivably go either way.

Parents looking for some peace of mind might throw a financial lifeline to their struggling or unemployed offspring. Or parents who’ve been providing some support might pull back.

One study of how parents in the United States and Germany handled this dilemma found that they retrenched in both countries during the Great Recession.

Parents are often an important source of support for their adult children. But between 2005 and the peak of the recession in 2009, the share of U.S. parents providing financial or in-kind support fell from 38 percent to 35 percent.

Germans are less likely to help their children in the first place, and they pulled back even more over the four-year period, from 24 percent to 10 percent of the parents, according to the 2017 study, which was funded by the U.S. Social Security Administration.

By 2011, the two countries had started to diverge: the Germans were stepping up their support again, while Americans continued to pull back. One obvious reason German parents snapped back earlier was that their economy recovered more quickly.

Oddly, the researchers didn’t find any major difference in behavior, in either country, between the parents who lost money in the stock or housing markets and the parents who did not. It could be that the economic uncertainty alone was enough reason to cut their assistance.

The researchers also note that, even if the parents don’t give money to their kids, they can still help out by letting them move back home.

During the previous recession in this country, that’s exactly what many of them did.

To read this study, authored by Mary Hamman, Daniela Hochfellner, and Pia Homrighausen, see “Mom and Dad We’re Broke, Can You Help? A Comparative Study of Financial Transfers within Families Before and After the Great Recession.” 

Read more blog posts in our ongoing coverage of COVID-19.

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

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