The unexpected consequences of adult children receiving financial aid from their parents

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If you were unemployed, would you let your mom give you money so you could get by until you got another job? Sure, if she offered, right? But wait – what if you knew that, in order to give you money, she was making up the difference in her budget by working more, spending less money on food, and putting less money into her retirement savings?

That’s an actual outcome of an adult child’s unemployment on their parent’s financial help, according to a new RAND Corporation study published in the IZA Journal of Labor Economics.

“One may assume that since parents willingly help their children, they are not worse off because of that decision,” said Kathryn Edwards, an associate economist and lead author of the study, in a release. “But our research shows that these decisions may not result in the best financial outcome for the parent.”

Researchers looked at the outcome of a child’s unemployment on parents’ financial assistance and examined the effect on the parents’ food consumption, income and savings. The research is based on an analysis of 4,500 mother-child paired plucked from the Panel Study of Income Dynamics, a longitudinal sample of U.S. households.

Once an adult child lost their job, parents are more inclined to give them cash. But researchers determined that the flip side of their generosity meant that parents spent less on food when their child became unemployed. This cutting back on food spending lasted for about two years.

In addition, researchers found, parents work more during the year their child is on the dole – and some even cut back on what they saved for retirement.

“On the individual level, most of the changes were small,” said Kathryn Edwards, lead author of the study. “The problem is what this means in the aggregate. When the labor market risk of one generation is informally insured by another, the older generation may be putting their retirement security at risk, while the younger generation has insurance that depends on how willing and wealthy their parents are. This is a trademark of basic economic inequality.”