Sharing the Wealth: Intergenerational Financial Ties in the Transition to Adulthood

• In Event: When Families Fill the Gaps: Intergenerational Support in Aging Societies

Abstract

Economic advantage is often passed from one generation to the next through intergenerational investments. The transition to adulthood is an important period for intergenerational investment, but there are often challenges to observing such investments in existing data sources. Measures of parental investments in young adults often focus on direct transfers of cash or purchases made on behalf of children. However, parents can also share their resources rather than make transfers outright. Sharing resources is particularly important because parental wealth is relatively illiquid during the transition to adulthood and thus direct transfers may be less accessible except to the wealthiest. 

We develop a conceptual model for parental sharing of resources in young adulthood and empirically investigate this model using consumer credit data, which allows novel insights into these dynamics. We study two distinct types of sharing: 1) residence sharing, which is a more commonly studied but still under-observed type of sharing; and 2) credit sharing, an often hidden form of sharing that we posit is nevertheless significant in the increasingly financialized United States. Residence sharing is a widely utilized form of sharing that is accessible to homeowners and renters and can significantly contribute to young adult financial stability. Credit sharing includes parents co-signing loans or adding young adult children as authorized users on their credit cards, allowing much greater spending limits, better terms, and potentially a backstop against risk. We conceptualize residence sharing and parental credit access as a wealth resources that can be developed—and then shared—even among those who lack other assets. 

This paper documents the prevalence and characteristics of intergenerational coresidence and credit sharing for all young adults aged 18 to 29 in Ohio with credit data from December 2015 through December 2023. Our population credit data allows us to observe people residing at the same address or sharing the same credit account. We conceptualize intergenerational connections as coresidence or credit sharing with an adult at least 15-years older than the young adult.  We first develop a methodology for capturing intergenerational ties in consumer credit data, linking young adults to supportive elders.  A major advantage of our approach is that we observe intergenerational ties without conditioning on family relationships, as is required in most surveys that investigate intergenerational transfers as related to the nuclear family of origin. We then describe the characteristics of young adults with and without financial ties through coresidence or credit sharing. Finally we  document substantial heterogeneity by income, race, gender, and family structure.  Our preliminary results find that young adults with evidence of resource sharing through coresidence or credit sharing are more financially stable, as measured by lower rates of collections or delinquency on debt payments, evidence of established independent credit, and lower use of high-cost alternative financial services. These results have important implications for policy, including the need for targeted assistance to young adults who lack intergenerational support.

Author

• Stephanie Moulton, The Ohio State University
  Presenting Author