Financial Transfers from Parents to Adult Children: Issues of Who is Helped and Why

To what extent can young adult children rely on their parents for financial support? Despite the critical role parents have in supporting their children, parental motives for financial support remain unclear. Findings using two waves of data from the Health and Retirement Study that control for the needs of children and the resources of parents suggest that parents give more inter vivos financial assistance to their more disadvantaged children rather than focusing on children most able to give them financial help in return. Assistance is unevenly distributed among children in the direction favoring the most financially needy, supporting altruism as a motivation. Other measures of child well being besides income, including home ownership, education, parental status, and marital status, also suggest that parents help needy children more. Living near by, an indicator of a child's potential helpfulness, results in receiving more, a finding consistent with exchange motives. Neither altruism nor exchange theories, however, address the finding that stepchildren receive substantially less support than naturally born or adopted children. An alternative explanation incorporating this finding suggests that giving of support is mediated by the degree to which parents feel a child is their dependent. Findings are robust upon allowing for unobserved differences across families by estimating fixed effect models.