Why Do Young Adults and Their Parents Make Intergenerational Transfers in South Korea?

Transcription

1 Why Do Young Adults and Their Parents Make Intergenerational Transfers in South Korea? Yun-Suk Lee Department of Urban Sociology, University of Seoul Juhyun Kim Institute for Social Development and Policy Research, Seoul National University Introduction Data Increasing young adults experience a longer period of economic dependence for greater social demand of college and graduate degrees, limited employment opportunities and later ages at marriage. Their parental generations also face the burden of preparation for prolonged age period due to an unprecedented increase in average life expectancy. Newly emerging economic situations for the two generations may trigger changes in the behaviors of intergenerational financial supports and so accumulating research examines patterns and reasons of transfers between the old and young generations. But less research investigates intergenerational transfers in countries where the rule of filial piety has been established that adult children should take care of old parents. Moreover many previous studies look at one direction of economic support, from parents to children or from children to parents and so fail to provide a fuller description of the economic exchanges. Finally the literature uses the income levels to reflect economic needs of each generation, but the wealth is also an important or better indicator of financial resources, especially for the old generation. We add to the literature on intergenerational transfers by examining both parent-to-young adult and young adult-to-parent transfers in South Korea. How young adults and their parents exchange economic support over the period of children s transition into adulthood? What parental and children s features are associated with the incident and amount of intergenerational transfers? And how do parents feel about exchanges of economic supports with children? For this study, we use a sample from the first wave of the Korean Longitudinal Study of Ageing (hereafter KLoSA). The KLoSA that the Korea Labor Institute, a governmental research institute, develops and collects is designed to address the social trends that emerge in the process of rapid population aging in South Korea. The basic survey, mostly using the same survey questionnaires, is conducted in 2006 and 2008 and a special survey about lifetime employment history is conducted in Based on the multi-stage area sampling method, the target of 6,000 households is selected and then all the individuals who are 45 years or older in each household are asked to participate. The wave 1 of the KLoSA collects information from 10,254 middle-aged and old-aged adults from 6,171 households and is representative of non-institutionalized South Koreans in these age groups. The topics of the first wave include those that are deemed to influence the economic and social activities of the middle and old population: demographics, family, health, employment, income, assets, and subjective expectations and satisfaction. The KLoSA is ideal for this study because it has extensive questions about exchanges of financial

2 transfers with children, parents, and siblings. Moreover, it addresses richer aspects of economic situations such as financial assets and debts as well as household earnings. Also it asks about chronic diseases that participants suffer from in addition to subjective assessment of own health. Therefore, the KLoSA provides a valuable chance to examine wider dimensions of need and resources of the young and old generations. There may be multiple respondents in each household due to sampling design and some of them are husbands and wives in the sample couples. Hence we select one respondent with the earliest birthday from each household. We utilize information from 3,116 parents with at least one child who is from 20 to 39 and lives separately because items about intergenerational transfers pertain only to nonresident children (67.7% of the young adult children in their 20s and 30s). The unit of analysis is the child-parent dyad (except Table 6 that examines parents satisfaction) and so families with multiple eligible children contribute multiple observations to the sample. The final sample includes parents who have one (n=684, 24.5%), two (n=1,143, 40.9%), three (n=699, 25.0%), and four or more (n=266, 9.5%) qualified young adult children, totaling 5,820 child-parent dyads. We note out that restriction to adult children gaining residential independence has limitation to generalizability of our analysis results. As expected, nonresident children are older and more employed than resident children. Furthermore old parents with children living separately are older and less educated and more likely to reside in rural areas than those with children living together. Therefore, maybe children in our sample possess more economic resources but parents in our analysis face greater realistic needs than the general parents and children. We will later pay attention to this feature of the sample in our discussions. Measures Parents are asked whether they and their spouse receive and give financial help from and to each of children living separately in Financial help is stated as giving money, helping pay bills or covering costs such as medical care, schooling, down payment for a home, rent and so on. Also it is noted at the questionnaire that a gift or a loan can be considered as financial help too. Subjects can make multiple choices among 1) yes, regular monetary transfer, 2) yes, irregular monetary transfer, 3) yes, non-monetary transfer, and 4) no monetary transfer. Then the monthly averages for regular economic transfer and the total amounts over one year for irregular financial transfer are asked to provide. We combine regular and irregular transfer as incident of intergenerational transfer and add the amounts of regular and irregular transfers as the total amounts of child-parent transfer over the 12- month period. We emphasize that all the information about occurrences and sizes of intergenerational transfers comes from parents. Previous research focus on economic abilities and financial needs of parents and children as associated with intergenerational transfers and employ some characteristics of both the generations in their explanations of intergenerational exchanges of economic supports. In our models of intergenerational transfers, we turn to some frequently used features of parents: gender, age, education, health, employment status, household incomes, home ownership and living arrangement. Female is a dummy variable and age is a linear variable. Educational level is a 4-point scale of elementary schools, middle schools, high schools and college or more. Health is subjective assessment of health status, a 5-point scale from very poor to very good. Employment status is included as a dummy variable indicating whether parents are employed in the models. We create three dummy variables representing occupancy types are owned, tenement, rent with deposit and others. Household incomes are natural logs of monthly household earnings. And living arrangements consists of alone, two-generation, three-generation with couple as the reference group. In addition to household earnings, employment status, occupancy types and education, we consider parental financial assets in the models of intergenerational transfers. Parental wealth is a substantial portion of the economic resources available to parents to facilitate economic supports to adult children.

3 And parental debt is a clear reason to motivate adult children to financial support to parents. We add financial assets minus debts as financial assets to the models. And coupled with health status, we examine the influence of chronic diseases. Many middle-aged and old-aged people suffer from various kinds of chronic diseases and treatments, or more correctly, managements of such diseases usually require steady and significant medical costs. We enter numbers of chronic diseases that parent are diagnosed with. Measures of resources and need for children include gender, age, education, school attendance, employment status, marital status, home ownership, proximity to the parental home, and frequency of contacts. Gender is coded to 1 for female children and age ranges from 20 to 39. Education level is assessed by a four-point scale of high school, two-year college, four-year college and graduation schools. School attendance and employment status are dummy variables to show whether the child is at school and at work. Marital status and home ownership are also dummy variables coded to 1 if the children are married and own homes. Distances to the parental households employ a four-point scale from within 30 minutes by public transportation to more than 2 hours by public transportation. And frequency of contacts uses a 5-point scale ranging from every day to once a month or less. Analytic Strategy South Korea is one of countries that have experiences great transformations in demographic situations (e.g., increased longevity, decreased fertility), economic statues (e.g., aggravating youth unemployment) and cultural backgrounds (e.g., more emphasis on the social and governmental roles in cares of the elderly) influencing economic responsibilities of the young adults and their parents. Using the first wave of the KLoSA, we examine intergenerational transfers between the two generations during the period of children s transition into adulthood. Our analytic plan first describes the overall flow of intergenerational support between old parents and young adult children. We look at the incidents and the amounts of intergenerational economic supports. Then we investigate parental and children s characteristics associated with intergenerational transfers. The residual term in the equation for the incident of the transfers may be correlated with the residual term in the equation for the amount of the transfers and so ignorance of this self-selection process may lead to biased estimates. In order to deal with this potential self-selection, we turn to Heckman s method including a correlation between the propensity to give and the amounts of transfers. In our models two equations are estimated simultaneously: 1) a selection equation explaining the incident of intergenerational transfers and 2) an outcome equation explaining the amount of intergenerational supports. Four dummy variables indicating Christianity, Catholicism, Buddhism, others and nonreligious, serve as the identifying variable to be included in the selection equation but not in the outcome equation. We find that The Rho (ρ) is significant for the Heckman selection model of upstream transfers but not for downstream transfers, indicating that there may be selection bias at least for economic support from adult children to old parents. Estimations of Heckman models report robust standard errors that take into account the parent-clustered nature of our sample. Standard errors specify that each case be independent across groups (e.g., family) but not necessarily independent within groups. Finally we examine how satisfied parents feel about intergenerational exchanges of economic supports. We estimate OLS regression models of two dimensions in satisfaction satisfaction about children and generational satisfaction using the incident and the amounts of downstream and upstream transfers as the main independent variables and some sociodemographic variables as controls. We apply the weights that the KLoSA provides in the muiltivariate models.

4 Analysis Incident and Amount of Intergenerational Transfers between Adult Children and Old Parents Using information from child-parent dyads, we look at the proportions of making downstream and upstream transfers between the two generations in South Korea. Table 1 about here Changes in the receipt of economic support from old parents by children s ages suggest that young adults in South Korea tend to cling to the social norm of independence. According to parental reports, only 10.7% of young adult children collect bank transfers from the old generation over the one-year period. Less than the half of even children in the early 20s (except at the age of 20), when many of them study at colleges, receive financial supports from parents. A sharp drop is observed during the late 20s, a transition period from school to work for those with college diploma. Then the proportion receiving financial help decreases to almost only one out of twenty children in their 30s, when many children take the adult roles of workers, spouses, and parents. These trends imply that young adult children in South Korea, at least those gaining residential independence, are generally en route to fiscal self-reliance. In addition to economic independence, young adult children begin to support their parents financially. We find that 44.6% of young adult children make regular or occasional transfers to parents in While about one out of ten children in the early 20s provide economic support to parents, a hike to four out of ten is seen in the late 20s, similar to downstream transfers. As children finish formal education and obtain some earnings, they return part of what they receive in school days to parents. In the 30s, one out of two children is a family source of income for the aged in South Korea. Coupled with trends of downstream transfers, these results suggest an intergenerational shift in exchanges of economic support during the children s transition into adulthood. The cross-tabulation of child-parent dyads by downward and upward transfers clearly indicates changes in generational supporting roles over this period. Table 2 about here About half of children (=47.4%) do not exchange financial transfers with their parents living separately. This group of pairs increases to 58.2% at the age of 28 and 29 and then decreases gradually to 40.0% at the age 39. The dyads making only upstream transfers are merely 3.9% at the age of 20, but rapidly increasing to 37.3% at 30 and to 55.3% at 39. This kind of pairs where parents rely on children accounts for 41.9% of the full sample. The contrary group where children depend on parents accounts for 67.3% at 20 and 39.5% at 21 but 2.3% at 39, totaling just 8.0%. We can notice a gradual and clear reversal in the directions of intergenerational dependence. The literature on intergenerational support reports that a significant number of married children and old parents maintain exchanging relationships, giving and taking manual, emotional, and material supports with each other. But focusing on financial transfers between young adult children and their old parents, we find that only 2.7% of parent-child dyads in our sample are involved in such bilateral relationships. Results above indicate that young adults generally appear to conform to the socially established norms of economic independence. Nine out of ten in our sample do not financial support from their parents

5 and almost two out of ten help the old generation economically. Increasing young adults move away from parental economic protection and act as a financial buttress for the aged. Previous research finds that children are a significant source of living costs for the old in several East Asian countries including South Korea. At the onset of adulthood period, Korean young adults gradually attainment economic independence and begin to play a financially supporting role for parents. Some studies examine just the receipt or frequency of economic supports, but we can explore uses or burdens of intergenerational transfers through the amounts of economic supports exchanged between the generations. We turn to how much the two generations provide to each other in The averages among those making transfers are organized by children s age below. Table 3 about here While only one out of ten young adult children receive economic support from parents, this child get an average of 62,450,000 won ( $5,800) over one year. Also comparison of regular and occasional transfers from parents indicates that these children are helped regularly every month. Clearly this large sum of money suggests that many of these adult children are dependent greatly on parents. In particular, children in their 20s are assisted much more financially because they are at school and rely on parents for their daily living costs as well as expensive educational expenses. But it appears that adult children receive less and less as he or she grows older, managing to afford living expenses with what they earn. These generous parents, while small in numbers, can be pressed over the burden of supporting their adult children as well as their own households, especially when the children are college or graduate students. On the other hand, over one-year period, giving adult children provides a total of 12,990,000 won ( $1,195) in 2005 to their parents living separately and they do occasionally rather than regularly, indicating more as gifts for special days (e.g., birthdays or Parents days) or spending money at times. Advancing to offices or factories after fierce competitions, young adults begin to fulfill children s responsibility to take care of old parents, many of whom are not ready for their economic futures. Young adult children acquiring adult roles cannot be a reliable source of living expenses for parents, but start to make returns to parental educational investments in them. Above results indicate that in terms of intergenerational support relationship with parents, children in the 20s and 30s are located on the rung of the economic ladder from the bottom taking the responsibility of helping financially to the high taking the benefit of receiving large sum of money. In addition to his or her own occupational or earning levels, intergenerational financial support exchanges may have significant implications to children s transition to adult and stratification differentiations. Recently some studies investigate the possible associations between parental supports and acquisition of adult roles. For example, it is documented that children with the economic advantage of parental support can have a longer preparatory and searching period for employment and end up with a greater chance of good jobs. Also with financial supports from parents, singles, especially females, may delay entrance into marital life because they spend more time searching for more attractive spousal candidates. Recently transition period to adulthood has emerged as one of important academic issues. More extensive efforts are necessary to examine the influences of various forms of intergenerational support exchanges observed in our analysis. Explanations of Intergenerational Transfers between Adult Children and Old Parents In this section, we examine the association between downstream financial assistance and characteristics of young adult children and their parents by estimating Heckman s selection models.

6 Table 4 about here A dominant framework explaining intergenerational exchanges of supports refers to resources and needs of the two generations. Some social and demographic features are identified to assess abilities and deficiencies of the potential givers and takers. We find that parents with more household earnings are more likely to provide economic aids to adult children and more educated parents are more generous with the amounts of financial aids to their offspring, which are consistent with past studies. Also parents in two- or three-generation households are less likely to help than those living only with spouses because they have more dependent household members such as old elderlies or little children to take care of. Older parents, who are at greater risk of poverty, are less likely to provide financial aids to adult children. Also mothers than fathers and old parents than young parents are less likely to make financial transfers to young children living separately. And protestant parents are more likely to help young children than non-religious parents. In addition to earnings, accumulating evidence suggests that wealth should be considered to evaluate economic situations of the old more accurately and so it may play a role in their decision to assist young children. We include amounts of financial assets in our model and find that while parents with more financial assets tend to wire more money to adult children if they send, while they are not more likely to help children. Interestingly, parental earnings and assets influence the decision and the amount to give respectively. Incomes are generally disposable as parents wish and so parents can send some of their earnings right away when they want. On the other hand, usually assets cannot be used at any time and so parents cannot help their offspring generations immediately whenever children are in need. But clearly variations in assets are much greater than those in earnings and so if parents with huge assets help children, they help them much more. Children s features are significant in the incident and amounts of downward intergenerational transfers. Obviously, children at schools or out of work are at a greater need of economic helps from parents and their parents are more likely to help these adult children. On the other hands, children who are older and married are more likely to gain economic independence, complying with the established rules for adults. And children who contact parents frequently are also more likely to receive parental aids. Generally educational attainment and home ownership are regarded as an indicator of economic status and studies in other countries report that children who are educated higher and possess own homes are less likely to receive parental economic support. But on the contrary to the expectation about economic situations and intergenerational economic support, we find that parents are more likely to help children graduating from higher educational institutions with more money. In South Korea parents economic investment in children plays a crucial role in entrance to college and graduation schools and so children s educational attainment can reflect parental willingness to support the offspring generations. Parents who actively support and manage children to get good academic grades and attend prestigious universities also tend to provide more financial aids to adult children. And the property prices are notoriously high in metropolitan and urban areas in South Korea and so most adults in the 20s or 30s cannot afford to have apartments or condos without parental help. Hence children s home ownership may indicate that parents are capable and generous to support children financially.

7 We turn to whether parental and children s characteristics are associated with upward intergenerational transfers. Table 5 about here Some factors reflecting resources and needs of the old parental generation are influential in decisions and amounts of upstream supports between the two generations. While parents with larger salaries are more likely to help adult children with living or housing costs (Table 4), parents with smaller household earnings are more likely to receive spending money or money gifts from their children in the 20s or 30s. And although parents out of or at work do not differ in whether they help children economically as Table 4 suggests, parents out of work are provided with greater financial aids from adult children. Older parents, who suffer from economic troubles, are less likely to provide (Table 4) and more likely to receive economic aids. Children are more likely to be a source of earnings for parents in poor health. And parent living in a three-generation household are less likely to give (Table 4) and more likely to get economic supports than those living only with spouses. Consistent with previous studies, some adult children s characteristics are associated with upward financial support to their parents. Girls than boys and married than single children are more likely to wire some money to old mothers and fathers. Parents get spending money more often and if they do, more amount of money from older and employed children. Those who finish formal education and live further away are more generous with economic cares of their parents. And children who contacts parents often are more likely to send more money to parents. Models of downstream (Table 4) and upstream (Table 5) intergenerational transfers suggest that Korean adults in their 20s and 30s who have diploma of colleges or graduate schools and own households are more likely to receive economic support from the old generation and also more likely to help the parental generation financially. These results suggest that over the period of transition into adulthood, these socially advantaged young adults exchange economic supports with their parents, who may enjoy ample economic resources enough to help adult children, much more frequently than their counterparts. The older generation helps adult children finish formal educations by paying for college tuitions and living costs, prepare for better employment opportunities by sending them to language institutes or foreign universities, and settle down after marriage by making up for the insufficient housing costs. And the adult children return their parents investments by giving some spending money in birthdays or Parents Day or providing a small portion of living costs on a regular basis as a token of their love and care, indicating an willingness to support the parental generation financially in the future. The two generations help each other maintain and solidify their already established social status with their own economic capital. Intergenerational Transfers and General and Relation Satisfaction to Parents In this section, we examine the association between intergenerational transfers and parental general and relation satisfaction for parents. We estimate OLS regression models of two dimensions of satisfaction using intergenerational economic support and socioeconomic controls. Table 6 about here Previous studies suggest that the Confucian norm that children have the obligation to take care of parents have been gradually weakened over the decades in South Korea, but results suggest that this

8 social expectation is still entrenched among parents in South Korea. Consistent with this social norm, parents feel high levels of satisfaction about children and life when they receive economic support from parents. Parents in receipt of regular or irregular transfers from adult children report about 6 points and 3 points on a 100-point scale of satisfaction (Model 1). And parents report higher levels of satisfaction about children and life over a change of one standard deviation in logged amounts of upstream transfers. Satisfaction depends on a judgmental comparison of desired and current life situations and so our results obviously suggest that the old generation have not let the traditional viewpoint of children s obligation go away. Several studies in the US report that parents feel ambivalent about their support to adult children. Old generations value the capacity to support those who they love and so some parents feel meaning of life when they provide some kinds of aids to their children. At the same time, parents believe that every adult should live an independent life and so bitterly disappointed that they have to still support adult children. But Korean parents position, at least about young adult children in the 20s and 30s, appear to be clear. We find that parents feel more satisfied about their children and life as they provide financial aids to adult children. Parents report higher levels of children and general satisfaction when they help children financially and more satisfaction over a change of logged downward transfers. Accumulating research documents that Korean parents prioritize children s academic and social success over anything, even their own well-being and so spend enormous energy and money on their children. Parents still maintain similar viewpoints about children after children attain adulthood. Korean parents may feel sorry when they do not have enough resources to help their children in the 20s or 30s who cannot study abroad for language practice or stay at a comfortable house after marriage. Obviously, Korean parental viewpoints of children as No. 1 priority are applicable well beyond adolescence. Discussion In spite of great demographic and social changes surrounding the two generations, at least young adults gaining residential independence appear to stick to the established norm that children should take care of old parents. Over the period of children s transition into adulthood, parents decrease the economic support to offspring generation and children increase the upward transfers to the old generation. But at the same time, it seems that parents, when helping children, are responsible for much of living costs to children, and children, when providing economic support, give it as a special gift or spending money. Generally speaking, parental features reflecting the needs and resources are associated with the incidence and amount of intergenerational transfers. It is noteworthy that parental assets are important in how much parents wire to children. Young adults with higher education and owning homes are more likely to exchange economic aids with their parents, suggesting that intergenerational economic support functions to maintaining and bolstering the class status. Korean parents feel more satisfied when they can help their children economically, implying that they care so much about economic well-being of their children even after children come of age.

9 Table 1. The Incident of Intergenerational Transfers between Parents and Children during the Transition to Adulthood in South Korea (%) Children's Age Downstream Transfers Upstream Transfers N Total ,820

10 Table 2. The Amounts of Intergenerational Transfers between Parents and Children during the Transition to Adulthood in South Korea (10,000 won) Children's Age Downstream Transfers Upstream Transfers Amounts n Amounts n Total ,582

11 Table 3. Directions of Intergenerational Transfers between Parents and Children during the Transition to Adulthood in South Korea (%) Children's Age No Downstream Transfers Upstream Transfers Bilateral Intergenerational Transfers Only Only Intergenerational Transfers Total

12 Table 4. Heckman Selection Regression Results of Downstream Intergenerational Transfers (log) Whether to Adult Child Amount (log) estimated coefficients estimated coefficients Parents' Characteristics Female ** Age ** Education Levels * Religion (vs. Non-religious) a Protestant ** Catholic Buddhism Others * Subjective Assessments of Health Numbers of Chronicle Diseases Employed Types of Housing Occupancy Own Lease Rent with Downs Monthly Household Earnings (log) * Financial Assets (log) ** Living Arrangement (vs. Couple) Alone Two-Generation * Three-Generation * Children's Characteristics Female Age * Education Levels ** * Currently Enrolled at School ** ** Employed ** Married ** ** Home Ownership ** Distance Frequency of Contacts ** * Constant ** ** lamda * p <.05; ** p <.01 Censored obs. = 4,799 and uncensored obs. = 583

13 Table 5. Heckman Selection Regression Results of Upstream Intergenerational Transfers (log) Whether to Parents Amount (log) estimated coefficients estimated coefficients Parents' Characteristics Female Age * Education Levels Religion (vs. Non-religious) a Protestant Catholic Buddhism Others ** Subjective Assessments of Health * Numbers of chronicle Diseases Employed * Types of Housing Occupancy Own Lease Rent with Downs Monthly Household Earnings (log) * Financial Assets (log) Living Arrangement (vs. Couple) Alone Two-Generation Three-Generation * Children's Characteristics Female * Age ** ** Education Levels * ** Currently Enrolled at School ** * Employed ** ** Married ** Home Ownership ** ** Distance ** Frequency of Contacts ** ** Constant ** * lamda * p <.05; ** p <.01 Censored obs. = 3,006 and uncensored obs. = 2,376

14 Table 6. OLS Regression Coefficients of Parental Satisfaction Satisfaction about Children General Satisfaction estimated coefficients standard error estimated coefficients standard error Model 1: Incident of Intergenerational Transfer Downstream Transfer ** ** Upstream Transfers ** ** R Model 2: Amounts of Intergenerational Transfer Downstream Transfer (log) ** ** Upstream Transfer (log) ** ** R * p <.05; ** p <.01 N = 2,780 Note: All the models include parental characteristics at Table 4 and Table 5 (gender, age, education levels, subjective assessment of health, numbers of chronicle diseases, employment, household income, types of housing occupancy, financial assets, and living arrangements) as controls