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Youth Labor in TransitionInequalities, Mobility, and Policies in Europe$

Jacqueline O'Reilly, Janine Leschke, Renate Ortlieb, Martin Seeleib-Kaiser, and Paola Villa

Print publication date: 2018

Print ISBN-13: 9780190864798

Published to Oxford Scholarship Online: January 2019

DOI: 10.1093/oso/9780190864798.001.0001

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Income sharing and spending decisions of young people living with their parents

Income sharing and spending decisions of young people living with their parents

Chapter:
(p.358) 12 Income sharing and spending decisions of young people living with their parents
Source:
Youth Labor in Transition
Author(s):

Márton Medgyesi

Ildikó Nagy

Publisher:
Oxford University Press
DOI:10.1093/oso/9780190864798.003.0012

Abstract and Keywords

This chapter examines income sharing by young adults living with their parents. Using data from EU-SILC 2010, the chapter explores the determinants of contributions to household expenses among young adults (aged 18–34 years) living with their parents in 17 European Union countries. The examination finds that income sharing in the household tends to attenuate income differences between household members and to help members with low resources. The results also show inequalities in young adults’ experience of co-residence with parents: young adults in low-income households tend to contribute more to the household than do those in higher income homes. In addition, the results show that the majority of young adults benefit from intra-household sharing of resources. There is, however, a minority of young adults whose income is lower when the actual extent of income pooling is taken into account in the calculation of equivalized household income.

Keywords:   co-residence, young adults, money management, income pooling, household income

12.1. Introduction

Co-residence rates have increased in many countries during the economic downturn (Aassve, Cottini, and Vitali 2013) as the crisis has induced young adults to postpone leaving the parental home or, in some cases, even to return there (see Mazzotta and Parisi, this volume). In order to evaluate the consequences of rising co-residence with parents for the income situation and material well-being of young adults, one needs to understand how incomes are shared in such households. This chapter provides quantitative evidence on how young adults in co-residence with their parents participate in household finances—an issue that is rarely studied in the literature.1

Studies analyzing poverty—including those on youth poverty—are based on the usual assumption that income is shared equally among members of the same household. This literature thus typically neglects the issue of income sharing within households and assumes the nonexistence of intra-household inequality. The literature on household money management most often studies couples, whereas evidence—especially of a quantitative nature—is scarce regarding other household types, including households in which parents live together with adult children. Research in demography and related disciplines (family sociology and population economics) studies the timing and determinants of the transition to independent living, whereas literature on household money management in co-residential living is scarce.

(p.359) This chapter examines the extent to which young adults living with their parents contribute to household expenses and also the extent to which they are able to decide autonomously about their expenses on personal consumption and leisure activities. The analysis is based on data covering 17 European countries from the European Union Statistics on Income and Living Conditions (EU-SILC 2010 special module) on intra-household sharing of resources. The chapter also explores the implications of taking into account intra-household sharing of resources for the assessment of the income situation of the young. In particular, we investigate the roles of absolute household income, household members’ economic needs, and relative income in shaping the observed patterns, also describing cross-country differences.

The study finds that income sharing in the household tends to attenuate income differences between household members and tends to help household members with low resources. The study also finds that there are inequalities in young adults’ experience of co-residence with parents: young adults in low-income households tend to contribute more to the household finances and to enjoy less independence in their consumption and leisure decisions. Our results also show that although the majority of young adults benefit from intra-household sharing of resources, there is a smaller group of young adults who tend to support their parents in the sense that their contribution to the household budget is higher. The most significant cross-country differences can be seen between the Eastern European and the other European countries, with young adults in Eastern Europe making higher contributions to the household budget and having less independence in consumption decisions.

The following section presents the related literature and formulates hypotheses about the determinants behind the contributions of young adults to household budgets and about the financial independence of young adults living in the parental home. In Section 12.3, we present the data and the methods used in the analysis. Section 12.4 presents our results concerning the determinants of young adults’ contributions to household budgets and their ability to decide about personal spending. In Section 12.5, we attempt to evaluate the effect of taking into account survey results regarding intra-household sharing of income in the estimation of the income situation of young adults. Section 12.6 concludes the chapter.

12.2. Literature review and hypotheses

In many advanced societies, the transition from adolescence to independent adulthood has become a slower and more variable process. This prolonged life phase between adolescence and adulthood often goes together with longer periods of co-residence between young adults and their parents. (p.360) Co-residential living arrangements can be the result of different life course trajectories, however. These include both adult children who have never left the parental home and those who have returned home after finishing education, after divorcing, or during spells of unemployment (“boomerang kids”). Finally, there are also cases in which a parent moves in with an adult child (Dykstra et al. 2013). Co-residence can be particularly important in times of crisis, when staying with or moving back to one’s parents’ home can be an element of the “safety net” provided by the family (Mazzotta and Parisi, this volume). Studies such as those by Aassve, Iacovou, and Mencarini (2006) and Aassve et al. (2007) show that co-residence can protect the young from falling into poverty.2

The benefits of co-residence for the young adult are the support, security, and company that living at home provides, as well as the financial advantages of such an arrangement. Co-residence with parents may imply some financial benefits for the young as they save on paying for rent and utilities, can enjoy better housing standards than they could otherwise afford, and the household can also benefit from economies of scale. On the other hand, co-residence with parents inevitably entails lower levels of autonomy compared to independent living (White 2002; Sassler, Ciambrone, and Benway 2008). The young adult has to accept the rules of the parental house and has to accept some parental oversight over work/education, free time, social activities, and also money spending. In many cases, the parents ask their young adult children to pay for room and board and/or to do housework.

The monetary contributions that young adults make when living in the parental home are rarely studied in the literature. For instance, the literature on income distribution and poverty generally assumes that income (or economic well-being) is shared equally among members of the same household and that an individual cannot be poor when living in a household that has adequate income. Although several studies suggest that significant inequalities might exist within the same family (e.g., Haddad and Kanbur 1990), the assumption of equal sharing is adopted by most of the studies, including those on poverty among young adults (e.g., Aassve et al. 2006, 2013; Ward et al. 2012).

Most of the research on the living arrangements of young adults concerns the timing and determinants of the transition to independent living, whereas literature on financial arrangements in co-residential living and how such households manage finances is scarce. Several studies assume that an intensive monetary exchange is taking place between parents and their adult children when they live in the same household—without explicitly analyzing such an exchange (White 1994).3 Financial arrangements in multigenerational households are not at the focus of the literature on intra-household inequality, nor is money management, because this literature tends to analyze couple households (Yodanis and Lauer 2007; Nagy, Medgyesi, and Lelkes 2012).

(p.361) A central concept of the literature on intra-household inequality is “pooling of incomes.” Full pooling of incomes means that all incomes of all household members are pooled and all members have full access to the pooled income. Partial pooling means that household members contribute only a share of their own income to the household budget and keep the rest (Ponthieux 2013). Here, we are interested in financial arrangements between young adults and their parents living in the same household. Specifically, we study the extent to which young adults pool their incomes with other household members or keep their incomes separate. We describe the determinants of young adults’ contributions to the household budget and assess their effects on the measurement of intra-household inequality. In the following, we formulate hypotheses regarding the determinants of young adults’ contributions to household budgets when they are co-residing with their parents.

12.2.1. Household Income and Young Adults’ Contributions

The overall level of monetary resources in the household is said to shape households’ money management strategies (Yodanis and Lauer 2007). For poor households, making ends meet (paying utility bills and having money at the end of the month) requires the careful management of the totality of household incomes. Under a certain level of household income, there is no “discretionary” income that household members can keep for themselves. Thus, we expect that in low-income households, the young adult members will keep a lower share of their income separate and will contribute more to the common budget. In parallel, we expect that young adults in poorer households will have less control over spending decisions (hypothesis H1).

12.2.2. Household Members’ Lack of Resources and Young Adults’ Contributions

Both economic theories of altruistic transfers (Cox 1987) and sociological theories about contingent transfers (Swartz et al. 2011) imply that household members will be inclined, when they can, to help other members in need of monetary support. Thus, we expect that young adults will increase their contributions to the household budget when their parents have insufficient economic resources—for instance, when the parent is single, when parents have no work, or when parents live with health limitations. On the other hand, young adults’ contributions to the household budget should be lower when they find themselves in difficult life circumstances and with insufficient resources. Such difficulties might arise from an unfavorable labor market situation (e.g., in the case of students or unemployed young people) or might also be associated with certain stages of the life course—for instance, young adults (p.362) with dependent children may be more in need of support (Schenk, Dykstra, and Maas 2010) (hypothesis H2).

12.2.3. Relative Income and Young Adults’ Contributions

The relative income of household members is assumed to influence intra-household income allocation. According to altruistic theories of intra-household transfers, a skewed distribution of income in the household would increase the incentive of the higher earning household member to pool resources and help household members with lower incomes (Cox 1987; Bennett 2013). When a young adult’s income is significantly lower than that of his or her parents, this implies a lower contribution to the household budget by the young adult and higher contributions from the parents. When the income distribution of the household is more equilibrated, contributions to the household budget should be more equilibrated as well; thus, higher relative income of young adults should go together with higher contributions to the household budget (hypothesis H3).

12.2.4. Cross-Country Differences in Young Adults’ Contributions

Cross-country differences in household financial arrangements between young adults and their parents might be expected for several reasons. First, differing patterns of nest leaving and co-residence lead to differences in the composition of the young adult population living with their parents. As the literature documents (Mulder 2009), young adults tend to leave the parental nest later in the Southern than in the Northern European countries, where young adults tend to leave the parental home early (in their early twenties).4 Western Europe occupies an intermediate position between these two country groups, whereas co-residence rates are relatively high in Eastern European countries (Dykstra et al. 2013). The composition of the young population still living at home is thus likely to be very different across countries, which could be partly responsible for cross-country differences in contributions to the household budget.

Cross-country differences in income sharing in households might also be linked to differences in family norms. For instance, Reher (1998) describes the Southern European countries as “strong family countries,” where kin relations and family solidarity are of prime importance. By contrast, in Western and Northern European countries, more individualistic conceptions of the family prevail, and the norm prescribes that young adults should attain economic independence and leave the parental home at an early age. In more individualistic countries, young adults are expected to be independent in their decisions (p.363) regarding leisure and consumption and could also be more likely to contribute to the household budget (hypothesis H4).

12.3. Data and methodological issues

This study uses data for 17 European countries from the EU-SILC 2010 ad hoc module on intra-household sharing of resources in the EU. This module contains household-level and individual-level questions about management of household finances, covering aspects of income pooling and decision-making about expenses and savings. Two questions are particularly relevant for our research topic because they provide substantial information on two dependent variables.

The first dependent variable in our analysis measures the degree to which respondents contribute to the household budget. The survey question PA010 asks respondents, “What is the share of income kept separate from the household budget?” According to the survey description, income that is kept separate from the “common household pot” is viewed by the respondent to be his or hers and can be used as he or she wishes (Eurostat 2010). By “common household budget,” the survey means expenses and savings not primarily concerning one person only in the household. The following responses were coded on a 5-point scale: (1) all my personal income, (2) more than half, (3) about half, (4) less than half, (5) none, and (6) no personal income.

The second dependent variable measures the extent to which other household members (in this case, parents) have control over the spending decisions of young adults. The relevant question (PA090) asks about the “ability to decide about expenses for personal consumption, leisure activities, hobbies.” The response categories are the following: (1) yes, always, almost always; (2) yes, sometimes; and (3) never or almost never. Here, we reverse the coding of this item and use the recoded version as a second dependent variable in our analysis. One way parents can gain control over the spending decisions of young adults is to ask for monetary contributions to the household budget. Thus, young adults who contribute a high share of their income to the household budget will have less opportunity to decide about spending on personal consumption.

We restricted our analysis to 17 EU countries representing different geographical areas in Europe.5 The analysis includes 3 countries from Western Europe (Belgium and Luxembourg together with Germany in the case of the first dependent variable and together with Ireland in the case of the second dependent variable), 6 countries from Southern Europe (Cyprus, Greece, Italy, Malta, Portugal, and Spain), 3 countries from Central–Eastern Europe (Czech Republic, Hungary, and Slovakia), 3 Baltic states (Estonia, Latvia, and Lithuania), and 2 countries from Southeastern Europe (Bulgaria and Romania). Our analysis studies young adults in the 18- to 34-year-old age group and their households in all these countries.

(p.364) In the following, we present the measurement of the key explanatory variables that are used in the multivariate analysis to investigate the hypotheses described previously.

Absolute income of the household is measured using total equivalent household income. In order to focus on within-country differences in income, we divided equivalent household income by the median of the given country and used the logarithm of income divided by the country median as an explanatory variable.

Lack of personal resources concerns household members who find themselves in difficult life circumstances with insufficient personal resources for various reasons. Here, we consider three types of such situations: labor market difficulties (e.g., unemployment), difficulties related to family structure (e.g., having dependent children or being single), and difficulties arising from poor health conditions. In the case of young adults, these are captured by measures of labor market status (five categories: working full-time, working part-time, unemployed, student, and other nonworking) and of whether they have children in the household (dummy variable).6 In the case of parents, difficulties are captured by measures of parental labor market status (three categories of parental work intensity:7 0–0.5, 0.5–0.99, and 1), health status (dummy variable showing whether either of the parents is seriously limited in daily activities because of health problems), and parental family status (three categories: single mother, single father, or both parents—or one parent with a partner—live in the household).

Relative income is measured by the personal income of the young adults relative to the average income of their parents. When calculating relative income, all income types that are recorded at an individual level in the EU-SILC data set (income from employment, self-employment, unemployment benefits, old-age and survivors’ benefits, sickness and disability benefits, and education-related allowances) were included. Relative income was then transformed into a five-category variable: The first category is composed of young adults with incomes below 30% of average parental income; in the second group, young adults have 31%–50% of average parental income; in the third, young adults have 50%–80% of parental income; the fourth category consists of cases in which young adults have income roughly equal to that of average parental income (between 80% and 120%); and the fifth category is made up of cases in which young adults have higher incomes than those of their parents (above 120%).

12.4. Determinants of financial arrangements

In this section, we first provide some descriptive statistics about young adults who are living in the parental household in 17 EU countries. We then show differences in our two dependent variables before proceeding with the description of the (p.365) results of the multivariate analysis. Finally, we analyze cross-country differences in household financial arrangements.

12.4.1. Young Adults Living in the Parental Home in Europe

The share of young adults living at their parents’ home varies significantly across the countries covered by the study. Among those in the 18- to 24-year-old age group, the great majority of young adults (more than 75%) are still living in the parental home in all countries. The highest percentage of co-resident young adults in this age group can be found in Slovakia (96%), whereas the lowest is found in Germany (78%). One can find more important differences between the country groups regarding co-residence with parents in the 25- to 34-year-old age group. In this group, the percentage of those living with their parents is lowest in Germany and Belgium (13%–17%), whereas the highest percentages are found in Slovakia, Bulgaria, Malta, and Greece, where more than half of those in this age group are living in the parental home.

Differences in the share of co-resident youth lead to differences in the composition of the population of young adults living with parents. Because this population is typically older in the case of the Southern and Southeastern European countries, it is not surprising that a relatively high percentage of them have a job, whereas the percentage of students is lower compared to Western European countries. The percentage of working youth is highest among those residing in the parental home in Malta (61%), Portugal (53%), and Greece (48%).

Income sharing and spending decisions of young people living with their parents

Figure 12.1 Percentage of young adults with income higher than 80% of average parental income in 17 EU countries, 2010.

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

Differences in the age and labor market status of co-resident young adults lead to differences between countries in terms of their relative income situation. The relative income situation of the young adult is described by comparing his or her personal income with the average income of parents, as described in the methodological section (see Figure 12.1). Whereas the majority of youth aged 18–24 years have a lower income compared to their parents in every country, in the case of the 25- to 34-year-old age group, this is only true for 5 out of 17 countries. The share of young adults who have similar or higher income compared to their parents is lowest in Germany, whereas it is highest in Malta. There is considerable variation among Western European and Southern European countries. Belgium and Luxembourg, unlike Germany, have a relatively high percentage of young adults with similar or higher income compared to their parents, whereas—except for Malta—the other Southern European countries do not exhibit high percentages in this regard.

12.4.2. Descriptive Analysis

Our first dependent variable describes the proportion of youth personal income that is contributed to the household budget and not kept separately. Figure 12.2 shows the percentage of those contributing at least half of their income to the (p.366) household budget in the countries included in the analysis (the whole distribution is shown in Table A12.1 in the Appendix). In all countries, only a minority of young adults contribute at least half of their incomes. The percentage of young adults contributing at least half of their income is highest in Romania (44%), Bulgaria (37%), Hungary (34%), and Latvia (30%). The lowest figures are found in the Western European countries (5%–10%), whereas the Southern European (p.367) countries are in between (approximately 16% or 17%), with the exception of Cyprus and Malta, where the percentage is lower.

Income sharing and spending decisions of young people living with their parents

Figure 12.2 Percentage of young adults (aged 18–34 years) contributing at least half of income to household budget by relative income in 17 EU countries, 2010.

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

The second dependent variable shows whether young adults are able to decide about spending on their personal consumption, hobbies, and so forth. Figure 12.3 shows the percentage of those who are always able to decide about this issue (the whole distribution is shown in Table A12.2 in the Appendix). The highest percentage is found in Malta, where 94% of young adults are always able to decide about spending on personal consumption, and the second highest percentage is detected in Belgium (84%). In Cyprus, Spain, and Luxembourg, this is true for 72%–76% of young adults, whereas in Portugal, Hungary, Slovakia, and Ireland, the percentage of those who are always able to decide is somewhat lower (61%–69%). The lowest figure is found in Romania, where only 27% of young adults responded that they are always able to decide about their personal expenses. The second lowest figure is found in both Bulgaria and Italy, where 44% of young adults who live with their parents are always able to decide about spending on personal consumption. In this case, there is thus more heterogeneity within country groups, especially in the case of the Southern and Central–Eastern European countries.

Income sharing and spending decisions of young people living with their parents

Figure 12.3 Percentage of young adults (aged 18–34 years) always able to decide about personal spending by relative income in 17 EU countries, 2010.

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

Figures 12.2 and 12.3 also show the association between our dependent variables and the income of young adults relative to their parents. In every case, there is a clear correlation between relative income and contribution to household expenses. Young adults who have higher income relative to their parents are more likely to contribute more than half of their income to the household budget compared to young adults who have low income relative to their parents. At the same time, it is also true that young adults with high income relative to (p.368) their parents are more likely to be able to decide about spending on personal consumption. The descriptive evidence thus supports our hypothesis regarding the role of relative income. In the following multivariate analysis, we investigate our hypotheses while taking into account cross-country differences in the composition of our sample.

12.4.3. Multivariate Analysis

To study our hypotheses about the determinants of young adults’ financial contributions to the household, and their ability to decide about personal expenses, ordinal probit regressions were run on pooled models with country dummies included.

In addition to the main explanatory variables described previously (measuring need for support, absolute income, and relative income position), the models control for variables that have been identified by the literature as affecting income sharing in households. The first group of controls are basic sociodemographic variables: gender (Ward and Spitze 1996), age, and education. According to Bonke and Uldall-Poulsen (2007), income pooling will be more frequent when there is a need for partners to coordinate their economic behavior. A case of coordination that is relevant to our research topic is that of common goods in the household (e.g., shared rental of an apartment and shared car). In our analysis, we control for tenure status of the dwelling where the household is living (three categories: owner occupied/rented for free, rented at reduced rate, and rented at market price). To quantify crowding in the household, we also include a measure of the number of rooms per household member. Other controls included in the analysis are parental migrant status and parental contributions to the household budget. Migrant origin was defined as those born in a country different from the country of residence, and we also measure the share of parental income contributed to the household budget by parents. It can be expected that, ceteris paribus, the contribution of the young adult will be higher in households in which there is a norm of income pooling, where parents pool a large share of their incomes.

Regarding our first dependent variable—which measures the monetary contributions of young adults to the household budget as a percentage of their income—the estimated coefficients for all explanatory variables are shown in Table A12.3 in the Appendix. To assess the magnitude of the effects, Table 12.1 provides average marginal effects of the most important explanatory variables on the probability that a young adult will contribute all personal income to the household budget (this is the highest category of the dependent variable). In Model 1, the sample has been restricted to young adults with positive income because respondents with zero income cannot contribute to the household budget. As a robustness analysis, we also run the same model on the sample of those aged 25–34 years (Model 2) because this is the age group for which the issue of (p.369) monetary contributions is more relevant. We also present results on the entire sample of those aged 18–34 years living in the parental home (Model 3).

Table 12.1 Dependent variable: Proportion of co-resident young adults’ (aged 18–34 years) personal income contributed to common household budget, average marginal effects on the probability of “contributing all personal income” for selected explanatory variables, 2010

Model 1: Those with positive income

Model 2: Those aged 25–34 years

Model 3: All those aged 18–34 years

Log household income

–0.0212***

–0.0170***

–0.0090***

Young adult’s relative income

0%–30%

0

0

0

30%–50%

0.0306***

0.0554***

0.0424***

50%–80%

0.0392***

0.0622***

0.0482***

80%–120%

0.0432***

0.0687***

0.0506***

120+%

0.0411***

0.0684***

0.0485***

Young adult’s labor market status

Works full-time

0

0

0

Works part-time

–0.0060

0.0041

0.0011

Unemployed

–0.0604***

–0.0690***

–0.0590***

Student

–0.0782***

–0.0762***

–0.0731***

No work, other

–0.0041

–0.0170

–0.0264***

Partner in household

0.0774***

0.0793***

0.0519***

Child in household

0.0413***

0.0449***

0.0389***

Number of parents in household

Only mother

0

0

0

Only father

–0.0073

–0.0158

–0.0089

Two parents

–0.0528***

–0.0475***

–0.0388***

Parental work intensity

0–0.5

0

0

0

0.5–0.99

–0.0042

–0.0002

–0.0032

1

–0.0082*

–0.0035

–0.0053*

Parental health limitations

0.0000

–0.0044

0.0030

Note: Pooled models include all controls and country dummies (see Table A12.3 in the Appendix).

(*) p < .10.

** p < .05.

(***) p < .01.

Source: Authors’ calculations based on the EU-SILC 2010 ad-hoc module on intra-household sharing of resources in 17 EU countries.

The results confirm the role of absolute household income, which has a statistically negative effect: The higher the household income, the lower is the (p.370) probability of young adults contributing significantly to the household budget. Hypothesis H1 about the role of absolute income is thus confirmed. The variables related to the lack of economic resources of young adults and their parents show mixed results. The results regarding the employment status of young adults are in line with our hypothesis H2. As Table 12.1 shows, students are 8 points less likely and unemployed youth are 6 points less likely to contribute all income compared to working young adults. Those neither in employment nor in education also have a lower probability of contributing to household expenses, but this is visible only in Model 3, which includes all members of the 18- to 34-year-old age group living in the parental home. Contrary to our expectations, having a child in the household actually increases the probability that the young adult will contribute all income to the household budget (by 4 points). This might be a result of more intensive reciprocity between parents and young adults with dependent children, where parents help with grandchild care and young adults increase monetary contributions to the household budget.

Also in line with hypothesis H2, young adults contribute a higher fraction of their income when the parent is single. The probability that the young adult contributes all personal income to the household budget is 5 points lower when both parents live in the household (or one parent with a spouse/partner). Contributions to household income are also less likely if parents work full-time during the whole year (work intensity equals 1). Contrary to our hypothesis, parental health problems are not associated with a higher probability of household budget contributions by young adults.

The relative income position of parents and the young is important in determining the contribution of young adults to the household budget. The higher the income of young adults compared to that of their parents, the higher the contributions they are likely to make to the household budget. Young adults whose incomes are between 31% and 50% of the average income of their parents are 3 points more likely to contribute all income to the household budget compared to young adults whose incomes amount to 30% or less of their parents’ average income. Young adults whose incomes exceed 50% of average parental income are 4 points more likely to contribute all their income.

Most control variables exhibit the expected sign (see Table A12.3 in the Appendix, Model 1). Higher contributions to the household budget become more likely with age. Somewhat surprisingly, education level (ceteris paribus) has a negative effect: Those with tertiary education are less likely to make a higher contribution to the household budget. This might be a result of shorter labor market experience on the part of those with tertiary education. Young adults in migrant households make higher contributions to the household budget. The contribution to the household budget is larger if parents contribute more from their own incomes to the budget. The contribution is also higher if the apartment/house is rented compared to owner-occupied housing. Parental age, overcrowding (p.371) (number of rooms per household member), and the number of young adults in the household have no significant effect.

We checked the robustness of our results concerning the determinants of young adults’ financial contributions to households by estimating the pooled model for the sample of all young adults aged 25–34 years (Model 2 in Table 12.1). The reason for selecting this age group is that the issue of contribution to household expenses might be more meaningfully studied among those aged between 25 and 34 years because many of those aged between 18 and 24 years are still obtaining their education. Finally, we also estimated the model for all those aged between 18 and 34 years (Model 3 in Table 12.1). As can be seen from Table 12.1, the results obtained with different subsamples show similar signs and significance to the original estimates. In some cases, the magnitude of the effects seems to be different: for instance, total household income or the effect of having no partner in the household has a stronger effect on contribution to the household budget in the case of the subsamples.

Regarding our second dependent variable—which measures the freedom of young adults to decide about their personal expenses—detailed results are shown in Table A12.4 in the Appendix, and the average marginal effects for the most important explanatory variables can be found in Table 12.2. The first model includes only total household income, relative income, and country dummies on the right-hand side. In the second model, we add other explanatory variables that relate to young adults, whereas the third model also adds parental characteristics. Ability to decide about expenses on personal consumption is also related to the absolute income of the household: Young adults living in more affluent households are more likely to be able to decide about spending on personal consumption. This result thus confirms hypothesis H1, similarly to the case of our first dependent variable. The pattern among variables related to the lack of personal resources is also similar. Part-time workers, the unemployed, students, and other inactive young adults are less likely to be able to decide about expenses on personal consumption compared to those who are working full-time. The effect of not working reduces the probability that the young adult is always able to decide about personal expenses by approximately 22–28 points. Having children decreases the probability that young adults can always decide about expenses on personal consumption, but the effect is not statistically significant. The variables measuring parental needs are expected to have a negative effect. This is confirmed in the case of parental family status: When a young adult is living together with a single mother, the probability of being able to decide about expenses is lower. On the other hand, parents having health limitations does not have a statistically significant effect. Relative income is also related to the ability to decide about personal consumption. In households in which the income of the young adult is roughly equal to or higher than the average income of parents, the young adult is 7 or 8 points more likely to be able to decide about expenses on personal (p.372) consumption compared to young adults who have less than 30% of parental income. These results confirm hypothesis H3.

Table 12.2 Dependent variable: Ability of co-resident young adults (aged 18–34 years) to decide about expenses for personal consumption, average marginal effects on the probability of “always able to decide” for selected explanatory variables, 2010

Model 1

Model 2

Model 3

Log household income

0.1417***

0.0762***

0.0630***

Relative income

0%–30%

0

0

0

30%–50%

0.0896***

0.0207

0.0279*

50%–80%

0.1388***

0.0368**

0.0520***

80%–120%

0.1780***

0.0556***

0.0669***

120+%

0.2020***

0.0641***

0.0795***

Labor market status

Works full-time

0

0

Works part-time

–0.0523**

–0.0539**

Unemployed

–0.2280***

–0.2205***

Student

–0.2348***

–0.2293***

No work, other

–0.2934***

–0.2823***

Partner in household

–0.0732***

–0.0841***

Child in household

–0.0126

–0.0051

Number of parents in household

Only mother

0

Only father

0.0382

Two parents

0.0267**

Parental work intensity

0–0.5

0

0.5–0.99

0.0276*

1

0.0063

Parental health limitations

0.0098

Note: Pooled models include country dummies and control variables (see Table A12.4 in the Appendix).

(*) p < .10.

(**) p < .05.

(***) p < .01.

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources in 17 EU countries.

The results regarding the control variables are shown in Table A12.4 in the Appendix. There is no statistically significant effect of gender or age. Influence over decisions regarding personal consumption increases with educational (p.373) attainment. Young adults living in more spacious housing are more likely to have influence over such decisions. Finally, the number of young adults in the household increases the likelihood that young adults can decide about expenses on personal consumption.

12.4.4. Differences Between Countries

We study differences between countries by examining estimates for country dummies in the pooled models. The country intercepts show the difference in the dependent variable that exists between the given country and the country of reference (Belgium) after controlling for a wide set of explanatory variables. Figure 12.4 shows the estimates of these country effects for the two dependent variables. According to the estimates, the probability that young adults contribute to the household budget is highest in Romania, Bulgaria, and Hungary. Other Eastern European countries and the Baltic states follow in the country ranking. The likelihood of contributions is, ceteris paribus, lowest in Luxembourg, Malta, and Cyprus. Germany and Belgium follow in the lower part of the country ranking, but Portugal, Spain, and Greece are also relatively close to these countries. It is clear from the figure that in the case of our two dependent variables, the country effects are negatively correlated: countries where young adults are less likely to contribute to the household budget are those where they are more likely to be able to decide about personal expenses. The main difference between the two (p.374) cases is that Greece and Italy are closer to the Eastern European countries in the case of the dependent variable on independence in consumption.

Income sharing and spending decisions of young people living with their parents

Figure 12.4 Differences between countries after controlling for covariates.

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

Overall, our results do not seem to show the expected pattern regarding cross-country differences, although information about more countries would be needed to properly test our fourth hypothesis. Our expectation was that more individualistic values in Western European countries would result in higher contributions to the household budget. In contrast to this, Belgium, Luxembourg, and Germany do not actually seem to be very different from the Southern European countries with regard to contributions to the household budget. The more important division seems to be between the Eastern European countries and the rest, with young adults being less independent and contributing more to household finances in Eastern Europe. This latter group seems to be heterogeneous, however, because Bulgaria and Romania show higher levels of contributions and lower levels of independence in consumption compared to other countries.

12.5. Impact of taking account of intra-household resource sharing on the relative incomes of the young

As the last step in our analysis, we evaluate the consequences of taking into account intra-household sharing of resources on the income situation of young adults living together with their parents. Our method follows that of Ponthieux (2014), who constructs a measure of modified equivalized income, taking into account the intra-household sharing of income in households. In the usual calculation of household equivalized income, all incomes of all household members are added up and divided by the number of consumption units in the household. However, the modified equivalent income studied here takes into account the fact that household members pool only a part of their incomes. Pooled income (or “public” income) in a household is composed of the personal incomes of household members that are contributed to the household budget plus other household-level income types (e.g., income from capital or income from certain social transfers). The total income of a household member is the sum of an individual’s personal income kept separate from the household budget plus his or her part of the public income of the household.8 To divide the personal incomes of household members into income contributed to the household budget and income kept separate for personal purposes, one can make use of responses to the survey question discussed in Section 12.3 about the share of income kept separate from the household budget. To make a numeric illustration possible, one needs to make assumptions about the precise share of income corresponding to each of the response categories. Here, we assume that keeping less than half of (p.375) income separate from the budget means keeping 25% of income for one’s own use, whereas keeping more than half means keeping 75% of personal income separate from the household budget.

As discussed previously, the standard measure of equivalized income used in inequality and poverty measurement assumes full pooling of incomes of household members and thus assumes equality among household members. The modified measure of equivalized income allows household members to keep a certain part of their income separate from the household budget (partial pooling). Moving from the standard measure to the modified measure is “beneficial” to young adults if their modified equivalized income is higher than standard equivalized income. Whether moving to the modified measure is beneficial, neutral, or detrimental to young adults depends on the relative incomes of young adults and parents and on their relative contribution levels. The proportion of such cases in the sample studies is shown in Table 12.3.

Table 12.3 The effect of taking into account intra-household sharing on the incomes of young adults (aged 18–34 years) in 17 EU countries (%)

Country

Modified income lower than original equivalized income

Modified and original equivalized income equal

Modified income higher than equivalized income

Total

BE

15.9

7.5

76.7

100

BG

19.7

12.4

67.9

100

CZ

24.3

6.3

69.4

100

DE

18.3

12.9

68.7

100

EE

22.8

6.4

70.8

100

EL

24.8

6.3

68.9

100

ES

11.3

9.8

79.0

100

HU

15.1

17.0

67.9

100

IT

16.9

5.5

77.6

100

LT

15.5

10.3

74.2

100

LU

12.8

4.5

82.7

100

LV

27.7

6.7

65.5

100

MT

33.2

4.1

62.7

100

PT

18.1

9.5

72.5

100

RO

28.6

9.2

62.3

100

SK

30.2

5.9

63.9

100

Note: By equal is meant between ±2% of the original equivalized income.

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

Table 12.3 shows the distribution of young adults in these groups. In all countries, the majority of young adults would benefit from moving from the standard (p.376) equivalized income to the modified version. This is mainly due to the fact that parents typically contribute a higher share of their income to the household budget compared to young adults. The highest percentage of young adults who would end up with lower incomes under the modified version can be found in Malta (33%), Slovakia (30%), and Romania (29%), whereas the lowest figures were found for Spain (11%) and Luxembourg (13%).

The standard assumption of inequality and poverty studies about intra-household equality thus means that we underestimate the incomes of the majority of young adults living with their parents. In reality, their income situation is likely to be more favorable than shown by the conventional statistics. There is, however, a smaller group of this young adult population for which the conventional estimates overestimate true incomes. This group is in a minority, but it is far from negligible; indeed, in some countries, it is close to one-third of the young adult population still living in the parental home.

12.6. Conclusions

This study uses the 2010 EU-SILC special module on intra-household sharing of resources to shed light on practices of income sharing in households in which young adults live together with their parents. The chapter is novel in two respects. First, it provides new quantitative comparative evidence on how young adults in co-residence with their parents participate in household finances and also on their financial independence. Monetary exchanges in such households are rarely studied either in research on family processes or in the literature on intra-household allocation. In particular, we studied the main determinants—the role of absolute household income, the status of individual economic need by household members (parents and adult children), and the relative income of young adults—of the contributions of young adults to the household budget and their freedom to decide about personal spending. The study also tries to quantify the effect of taking into account intra-household income sharing on the measurement of the income situation of young adults.

Our findings on the determinants of contributions to household budgets and on the ability to decide about personal expenses broadly confirm our hypotheses about the effects of household income, relative income of household members, and household members’ material needs. We found that income sharing in households tends to benefit household members in need and with low relative income. The young pay lower contributions when they are in need (e.g., unemployed or students), but they pay higher contributions if the parents are in need of support. Contributions to the household budget increase with the relative income of young adults, albeit sometimes non-monotonically. Overall, this pattern is consistent with the view that income sharing in the household tends to attenuate income differences between household members.

(p.377) Although income sharing moderates differences within households, we found inequality between low- and high-income households in the extent to which young adults can benefit from intra-household transfers. In households with high absolute incomes, young adults contribute less to the household budget and are more free to decide about their personal expenses, whereas in low-income households, young adults contribute more to the household budget and have less independence in consumption decisions. Our hypothesis on cross-country differences was only partially confirmed. Young adults living in the parental home in Western European countries are the most independent in deciding about personal expenses, and they contribute less to the household budget. Moreover, Western European countries are not very different from some of the Southern European countries. The most important difference is between the Eastern European countries and the rest, with young adults being less independent and contributing more to household finances in Eastern Europe.

Our results show that the majority of young adults benefit from intra-household sharing of monetary resources compared to the conventional assumption of intra-household equality. This happens because parents typically have higher incomes than their young adult children and share a larger fraction of their incomes with other household members. There is, however, a smaller group of young adults (between 11% and 33%) who support their parents economically in the sense that their contribution to the household budget is higher. Overall, our results suggest that young adults have differing motivations for and experiences with co-residence with parents. Some young adults stay at home longer in order to enjoy better economic well-being, some stay at home longer as a strategy to overcome the difficulties faced in the labor market or on the housing market or both, whereas others stay at home longer in order to support their family of origin.

The 2010 special module of the EU-SILC on intra-household sharing of resources is a valuable data set for studying intra-household allocation, which is seldom covered by large comparative surveys. There are, however, certain drawbacks of the survey that impose constraints on the current study. One constraint is that we are unable to differentiate between different cases of co-residence, such as young adults returning to the parental home and young adults who have never left home. Another limitation is that the question about income sharing does not explicitly ask what percentage of their income respondents keep separate or put into the household budget, so assumptions are required when this information is used in calculations.

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Table A12.1 Proportion of personal income contributed by co-resident young adults (aged 18-34 years) to common household budget in 17 EU countries, 2010

Country

All income separate

Less than half in common pot

About half in common pot

More than half in common pot

All income in common pot

No income

Total

n

BE

31.3

6.8

0.9

3.2

4.7

53.1

100.0

1,311

BG

7.8

12.2

8.6

13.7

14.6

43.1

100.0

2,538

CY

39.4

4.9

1.7

2.4

2.0

49.5

100.0

1,784

CZ

17.8

22.6

6.4

4.1

4.7

44.2

100.0

2,875

DE

47.3

12.8

2.2

3.2

4.3

30.3

100.0

2,146

EE

19.7

9.1

8.2

6.9

5.7

50.5

100.0

1,477

EL

30.9

11.8

5.6

6.5

3.5

41.8

100.0

2,295

ES

35.4

7.2

3.7

3.8

8.4

41.6

100.0

4,572

HU

11.8

10.8

6.9

11.6

15.6

43.3

100.0

3,595

IT

23.2

6.9

3.9

7.6

5.1

53.3

100.0

5,727

LT

9.7

14.3

5.4

6.7

10.7

53.1

100.0

1,792

LU

36.2

7.3

2.1

0.7

2.7

51.1

100.0

1,498

LV

11.0

10.3

7.7

16.7

5.7

48.6

100.0

2,221

MT

65.4

4.3

1.5

4.5

2.4

22.0

100.0

1,838

PT

37.4

9.4

3.4

4.8

8.1

37.0

100.0

1,814

RO

4.9

7.7

7.8

25.2

10.9

43.4

100.0

2,783

SK

17.5

22.1

4.5

12.6

4.5

38.8

100.0

3,344

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

Table A12.2 Ability of co-resident young adults (aged 18–34 years) to decide about spending on personal consumption in 17 EU countries, 2010

Country

No

Yes, sometimes

Yes, always

Total

n

BE

6.2

10.3

83.5

100.0

1,313

BG

22.8

33.0

44.3

100.0

2,538

CY

6.2

17.6

76.2

100.0

1,784

CZ

21.7

30.3

48.0

100.0

2,855

EE

15.8

30.1

54.1

100.0

1,551

EL

18.0

25.7

56.2

100.0

2,295

ES

8.4

17.2

74.4

100.0

4,573

HU

10.9

25.9

63.3

100.0

3,595

IE

20.7

12.2

67.1

100.0

1,277

IT

29.7

25.8

44.5

100.0

5,727

LT

12.4

39.4

48.2

100.0

1,772

LU

12.5

15.1

72.4

100.0

1,488

LV

25.2

24.8

50.1

100.0

2,221

MT

1.6

4.7

93.7

100.0

1,832

PT

14.6

16.3

69.1

100.0

1,819

RO

36.5

36.6

26.9

100.0

2,783

SK

17.6

21.4

61.0

100.0

3,345

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

Table A12.3 Dependent variable: Proportion of personal income contributed by co-resident young adults (aged 18–34 years) to common household budget, coefficients of ordinal probit model, pooled models

Model 1: Those with positive income

Model 2: Those aged 25–34 years

Model 3: Those aged 18–34 years

Log household income

–0.0961***

–0.1737***

–0.1306***

Relative income

0%–30%

0

0

0

30%–50%

0.5270***

0.3000***

0.5582***

50%–80%

0.5783***

0.3681***

0.6072***

80%–120%

0.5984***

0.3985***

0.6522***

120+%

0.5805***

0.3826***

0.6507***

Female

0.0112

0.0319

0.0167

Age

0.0230***

0.0247***

0.0226***

Education, three categories

Below upper secondary

0

0

0

Upper secondary

0.0147

–0.0637*

–0.0721

Tertiary

–0.0946**

–0.1941***

–0.1890***

Labor market status

Works full-time

0

0

0

Works part-time

0.0084

–0.0421

0.0277

Unemployed

–0.6501***

–0.5652***

–0.6643***

Student

–0.9736***

–0.8640***

–0.7811***

No work, other

–0.2270***

–0.0286

–0.1227

Partner in household

0.5563***

0.6351***

0.6098***

Child in household

0.4167***

0.3385***

0.3455***

Number of parents in household

Only mother

0

0

0

Only father

–0.0738

–0.0458

–0.1004

Two parents

–0.3735***

–0.3915***

–0.3362***

Parents’ average age

–0.0023

–0.0029

–0.0024

Parental education level

All below upper secondary

0

0

0

With and without upper secondary

0.0085

–0.0640

–0.0842

All at least upper secondary

–0.1298***

–0.1248**

–0.1430**

Parental work intensity

0–0.5

0

0

0

0.5–0.99

–0.0343

–0.0342

–0.0015

1

–0.0574*

–0.0675*

–0.0272

Parent has health limitations

0.0323

0.0004

–0.0337

Parent migrant origin

0.2196***

0.2551***

0.2660***

Contribution of parent to household budget

No contribution

0

0

0

Half or less

0.3852***

0.4020***

0.4648***

More than half

0.4480***

0.5348***

0.5663***

No income

0.5121***

0.5743***

0.5886***

Home ownership

Owner/no rent

0

0

0

Reduced rent

0.0740

0.0917

0.0426

Market rent

0.1921***

0.2650***

0.2644***

Rooms per household member

–0.0531

–0.0268

–0.1142*

No. of household members aged <18 years

0.0035

0.0042

0.0133

No. of household members aged 18–34 years

–0.0148

–0.0246

–0.0620*

N

Pseudo R2

Note: Pooled models include control dummies (coefficients not shown).

(*) p < .10.

(**) p < .05.

(***) p < .01.

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

Table A12.4 Ability to decide about spending on personal consumption, coefficients of ordinal probit model, pooled models

Model 1

Model 2

Model 3

Log household income

0.5276***

0.3055***

0.2561***

Relative income

0%–30%

0

0

0

30%–50%

0.2832***

0.0774

0.1047*

50%–80%

0.4570***

0.1400**

0.1999***

80%–120%

0.6107***

0.2159***

0.2616***

120+%

0.7146***

0.2514***

0.3156***

Female

0.0075

0.0103

Age

0.0022

0.0033

Education, three categories

Below upper secondary

0

0

Upper secondary

0.1998***

0.1482***

Tertiary

0.3086***

0.2402***

Labor market status

Works full-time

0

0

Works part-time

–0.2311***

–0.2409***

Unemployed

–0.8278***

–0.8147***

Student

–0.8481***

–0.8415***

No work, other

–1.0199***

–0.9994***

Partner in household

–0.2935***

–0.3422***

Child in household

–0.0503

–0.0206

Number of parents in household

Only mother

0

Only father

0.1544

Two parents

0.1063**

Parents’ average age

0.0036

Parental education level

All below upper secondary

0

With and without upper secondary

0.0573

All at least upper secondary

0.1662***

Parental work intensity

0–0.5

0

0.5–0.99

0.1143*

1

0.0255

Parent has health limitations

0.0397

Parent migrant origin

–0.0984

Contribution of parent to household budget

No contribution

0

Half or less

0.1148

More than half

0.0573

No income

–0.1565

Home ownership

Owner/no rent

0

Reduced rent

–0.0088

Market rent

–0.0858

Rooms per household member

0.1374**

No. of household members aged <18 years

0.0381

No. of household members aged 18–34 years

0.0450*

N

19,861

19,708

18,596

Pseudo R2

0.094

0.125

0.129

Note: Pooled models include control dummies (coefficients not shown).

(*) p < .10.

(**) p < .05.

(***) p < .01.

Source: Authors’ calculations based on the EU-SILC 2010 ad hoc module on intra-household sharing of resources.

(p.382) (p.383) (p.384) (p.385)

Notes:

(1) Earlier versions of the chapter were presented at the International Sociological Association RC28 spring meeting in Budapest (May 8–10, 2014); at the STYLE (p.378) Project Consortium Meeting, Grenoble School of Management (March 23–24, 2015); and at various seminars. The authors benefitted from comments from the editors; from Fatoş Gökşen, Chiara Saraceno, András Gábos, and Gábor Hajdu; and also from conference and seminar participants. Research assistance was provided by Orsolya Mikecz. Financial support from Bolyai János Kutatási Ösztöndíj to Márton Medgyesi is gratefully acknowledged.

(2) In the case of the United States, Kahn, Goldscheider, and García-Manglano (2013) affirm that young adults have become the more financially dependent generation in multigenerational households. This evidence also suggests that co-residence with parents might protect the young from falling into poverty.

(3) Although financial arrangements between parents and co-resident young adults are not at the forefront of research on co-residence or intra-household arrangements, there are some studies that cover this area, such as Aquilino and Supple (1991), Ward and Spitze (1996), White (2002), and Sassler et al. (2008).

(4) Several reasons have been put forward for this difference. Some explanations highlight the difficulties that young adults face on the labor market and the housing market in Southern European countries (Buchmann and Kriesi 2011). Others focus on preferences and norms. According to Manacorda and Moretti (2006), parental preference for co-residence with young adult children can be strong, and parents can bribe children to stay in the parental home. Giuliano (2007) also shows the effect of cultural norms on the home-leaving behavior of young adults. She demonstrates that value changes (e.g., the sexual revolution in the 1970s) have different effects on the living arrangements of second-generation immigrants in the United States, depending on the cultural norms prevailing in their countries of origin.

(5) The so-called register countries (Denmark, Finland, the Netherlands, Slovenia, and Sweden) had to be omitted because only one respondent was selected per household to answer the personal questionnaire. Other countries were not included because of substantive modifications to the expected question wording (Austria, France, and Ireland in the case of the first explanatory variable) or differences in response categories (France and Ireland) that make comparison with other countries difficult. Three other countries were not included because of a high percentage of missing values in the case of the population aged 18–34 years (Austria, Poland, and the United Kingdom). In the case of the second explanatory variable, Germany had to be excluded, but we were able to use the data for Ireland.

(6) Health status for young adults is not included in the analysis because this is relevant for only a small subsample and these people tend to be outside the labor market. This makes it difficult to arrive at a reliable estimate of poor health in the case of the young.

(7) The work intensity of a household is the ratio of the number of months that all working-age household members (aged 16–64 years) have worked during (p.379) the income reference year to the total number of months the same household members theoretically could have worked during the same period.

(8) The part of public income assigned to one household member equals P/Neq, where P is the amount of public income of the household, and Neq measures the number of consumption units in the household.