Introduction:
"Call it a clan, call it a network, call it a tribe, call it a family.
Whatever you call it, whoever you are, you need one (Howard, 1998)."
According to the "Population Bulletin" in 2002, "The financial
well-being of older Americans has never been better than it is right now,
and a significant number of older Americans are actually quite wealthy (Himes,
2002)." Despite this positive announcement, older Americans live at
all income levels and some continue live at or around the poverty line making
it difficult to maintain a decent standard of living. In American society
the resources used to support the elderly and retired population may include
any combination of personal savings, private pensions and Social Security
benefits. As people age, unforeseen events such as loss of a job, health
problems or death of a spouse, can put strains on an individuals resources,
especially if they have already retired and are not earning a steady income.
In addition to the three options mentioned above, the elderly may also rely
on their families for old age security. In the developed countries, and
specifically in the United States, studies have shown that children do in
fact provide old age security for their elderly parents. This paper explores
that relationship between adult children and their roles in providing old
age security for their elderly parents. The first section discusses what
is actually meant by old age security and is followed by a section that
focuses on the different characteristics between caregiver and recipient
that influence support. The third section focuses on time versus cash transfers
and more specifically on the impact of an individuals asset worth influencing
aid. The fourth and fifth sections look into the different motivations of
both providing and seeking aid on behalf of adult children and their parents.
Finally, the paper concludes with a look at what the trends in old age security
mean for public policy making.
Types of Security:
First, a broad description of the different types of old age security is
necessary in order to facilitate an understanding of the role of adult children
as caregivers. Broadly speaking, old age security can be divided into two
sectors. First, there is the formal sector which includes government aided
programs such as Medicare, Medicaid and Social Security. Unfortunately,
while looking towards the future, if an individual is unmarried and disabled
with old age the United States Social Security system will not be enough
to keep him or her above the poverty line (Rendall, 1998). Given the limitations
of the formal sector, many elderly Americans opt to receive aid from the
informal sector, which includes receiving help from their children or other
close relatives. While family falls under the category of the informal sector,
the actual types of aid provided by adult children is varied. Adult children
provide aid by lending their parents time to help with household chores
or transportation issues. Other adult children provide financial aid in
order to help supplement their parents' income or to help cover the costs
of unforeseen medicals bills etc. In addition to providing money and time
some adult children also provide a space for their elderly parents to live,
but this usually only occurs once a parent has been widowed.
Caregiver/Recipient Characteristics:
When trying to understand the nature and amount of assistance provided by
adult children it is important to consider a number characteristics pertaining
to both the caregivers and the recipients of the care. For example, the
marital status of parents strongly affects the degree to which care is received
from within the family. Generally speaking, single parents receive more
aid from their children than when both parents are still living (Caputo,
2002). Another important factor determining type and quality of aid depends
on living arrangements. One study found that, "the majority of elderly
Americans have at least one adult child living within 10 miles of their
residence (Caputo, 2002)." Obviously, this statistic reflects that
close distances make it easier to provide substantially higher amounts of
care if parents and adult children live a short distance apart from one
another. While sex appears to have no relation on the degree of care some
studies have shown that race in the United States does affect the motivations
for old age security. Eggebeen found that, "Blacks and Hispanics for
example, are more likely than whites to give away money, while blacks are
less likely than whites to provide household assistance (Caputo, 2002).
The factors that affect old age support even vary with the number of children
or the overall health of the parent. It should be noted that any concrete
understanding that evaluates old age support is extremely difficult, because
of these variables influenced by so many different sets of characteristics.
Cash versus Time Transfers:
One of the most important characteristics that affect the nature and quality
of care is connected to both the asset wealth of the recipient and the asset
wealth of the care giver. In one analysis this proved truer with cash transfers
than with time transfers. The testers tried to "formulate a model to
provide a framework for empirical analysis in which a middle-aged child
transfers both time and money to an elderly parent based on altruism (Sloan,
2002)." It was found that child wealth had a positive effect on transfers,
which meant the wealthier the children, the more financial aid they provided
their parents. At the same time parents who were less affluent than their
children typically received more financial aid than not (Sloan, 2002). On
the other side, parents who were better of typically lived a longer distance
away from their children and had less contact with their children (Sloan,
2002). The analysis of time transfers did not provide as much empirical
support as did the evidence towards money transfers. This study on money
transfers sustains the notion that if children have the money they will
offer aid, and if parents have enough money they will try not to burden
their children. The different generations will generally prove to be generous
if they can afford it.
Adult Children Motivations:
Studies have shown that adult children, in many circumstances, do in fact
provide old age support for their parents. The next question to ask is what
motivates this trend in American households. It is difficult to study human
behavior, but many studies have tried to investigate the motivations behind
adult children providing care. Given the many complexities on human behavior,
studies on wealth, inheritance and providing care have come back with different
results. Economists have simplified the motivations for providing elderly
care into two theories. One theory perceives adult children as rational
agents who provide old age security for potential self gain such as receiving
inheritance. The other theory argues that adult children are rational actors
who adhere to social norms of altruistic behavior thereby accepting responsibility
for loved ones.
Despite the bipolarity of explanations, some studies have found that whether
or not a child is a rational agent of actor depends on the actual activity
that the child. For example, activities that require time, such as cleaning
or providing transportation are not influenced by a parent's asset status
(Rendall, 1998). On the other hand the lending of money by adult children
for their parents is in fact affected by inheritance related factors such
as a parent's asset status. Interestingly enough expectations about lending
money are also varied. An estimated 75% of American women expected their
children to contribute money in family emergency, while only 10% expected
their children to support them financially as they grow old (Rendall, 1998).
Another interesting statistic states that about 80% of wealth held by all
U.S households comes from intergenerational transfers, yet in another study,
18.6% of those interviewed thought they would receive inheritance and only
47.5% expected to leave bequests (Caputo, 2002). When these two statistics
are looked at together it would seem that few elderly expect financial help
from their children, while few children expect to receive inheritance from
their parents. This finding supports the idea that more people behave as
rational actors when performing social security for the elderly and are
motivated more so by altruistic means. A second study on "Upstream
Intergenerational Transfers" supports the same idea that interactions
between the elderly and adult children are generally motivated by altruism
(Sloan, 2002).
Elderly Motivations and Fertility Rates:
In many developing countries an important reason to have kids is to guarantee
some form of old age security. This is especially true in developing countries
that do not have a strong social welfare system established for the elderly,
leaving people to look towards the informal sector for support. Economists
have looked at old age security in developed nations such as the United
States and Germany in order to understand if old age security was an important
motivating factor for fertility. Results have shown the opposite to be true
in developed countries stating that old age security is not an important
factor motivating the desire to have kids (Rendall, 1998). Despite these
obvious differences between old age security and fertility rates in developed
and underdeveloped countries, more studies need to be done in order to better
understand the motivating factors of adults to have children. One study
proposes that instead of looking at developed versus underdeveloped countries,
a cross sectional study should be done looking at fertility differentials
based on socioeconomic status and race Rendall, 1998).
Adult children substitutes for insurance policies:
In one study economists looked at long-term care insurance in order to see
if family acted as a substitute to purchasing such policies. In the United
States chronic old age care is expensive with the price for one year in
a nursing home costing anywhere between 40 and 50 thousand dollars. Those
aged 65 and older have a 39% chance of going to a nursing home and, despite
the expensive price tag, only 5% of the elderly have insurance for nursing
home care (Sloan, 2002). Potential reasons for this trend may include high
premiums, low incomes of the elderly and the inability for an individual
to anticipate his/her long term care need, however many of these explanations
are inadequate (Mellor, 2001). What economists find is, "the availability
of informal caregivers, such as children has no statistically significant
effect on the likelihood of long-term care insurance ownership (Mellor,
2001)" Furthermore the same study suggests that intra-family moral
hazard does not play a significant role in determining private insurance.
In other words, the data disproves the validity of the idea that elders
decline to purchase insurance, because they see children as potential substitutes,
who could be persuaded to provide care through the possibility of larger
bequests. The factors that do affect long-term care coverage are assets,
income and education. This study, which focuses on a different aspect of
old age security arrives at the same conclusion as other studies that point
to children assuming the role as caregivers for altruistic reasons. Publicly
these reasons show that government programs and insurance coverage will
not be as limited by intra-family moral hazard as some other work suggests.
Responsibility and the Future:
If adult children continue to provide care for their parents as rational
actors motivated by altruism then this trend will prove beneficial to the
country for two reasons. First, public policies such as Social Security,
Medicare and Medicaid will not necessarily, affect adult children's' motivations
to provide care in time of need (Caputo, 2002). Second, the general ethic
of caring or parents is strong, suggesting that there will be "pool
of caregivers" to handle the burdens created by the aging baby boom
generation. At the same time, it should be noted that the results from many
of these studies have limitations and missing data, which suggest that there
are many continued areas for research. No matter what the motivation, care
giving for elderly parents by their adult children is important to reducing
poverty among the elderly. It is estimated that 1.3 million people, or 11%
of all unmarried elderly in the United States, are able to live at above
poverty levels because they are living with family members (Rendell, 1998).
Or put a different way, the poverty rates would nearly double without family
assistance.
Caputo, Richard K. (2002) "Adult Daughters as Parental Caregivers: Rational Actors versus Rational Agents", Journal of Family and Economic Issues v23, n1 (Spring 2002): 27-50.
Himes, Christine L.; "Elderly Americans", Population Reference
Bureau, Population Bulletin, Vol. 56, No. 4, December, 2001
Howard, Jane; Families; (Transaction Publishing): October 1998.
Mellor, Jennifer M. (2001), "Long-Term Care and Nursing Home Coverage:
Are Adult Children Substitutes for Insurance Policies?", Journal
of Health Economics v20, n4 (July 2001): 527-547.
Rendall, Michael S.; and Raisa A. Bahchieva, "An Old-Age Security Motive
for the United States?" in Population and Development Review,
Volume 24, Number 2, June 1998, pp. 293-307.
Sloan, Frank A.; Zhang, Harold H.; Wang, Jingshu (2002), "Upstream
Intergenerational Transfers", Southern Economic Journal v69,
n2 (October 2002): 363-380.