The title of the article from yesterday’s NY Times, Financially Set, Grandparents Help Keep Families Afloat, Too, on its surface seems to be about grandparents and their grandchildren. But really it’s about a much more interesting topic, parents giving financial support to their adult children.
The article contains evidence that an important social shift is occurring. For example, an employee at a private school told the reporter that an increasing percentage of tuition checks were written by grandparents, and he estimated that 15% to 20% of kids had grandparents paying the tuition.
The above revelation makes me wonder, what percent of the 85% to 80% of parents who write the checks themselves are receiving significant support from their own parents? Probably quite a large percentage.
How do so many young people afford to live in Manhattan where a studio apartment costs $2,000 per month? Most of my sister’s female friends have their rent paid for by their parents, or perhaps their parents bought a condo and let them live in it. (I think the reason why Manhattan has more female than male residents is because women receive more help of this sort from their parents. This is a topic I hope to write more about in the future.)
This is definitely the dirty secret of generations X and Y. No one comes out and tells you that their parents give them $20,000 per year or more. So the unfortunate with poor parents wonder how all their peers seem to have more money.
Asset inflation certainly has a lot to do with this generational shift. When a young person buys a ridiculously overpriced house from an older seller, it’s a transfer of wealth from the young generation to the old generation.
The government makes this situation worse with Social Security, taking money from the poor young workers and giving it to the rich older retirees.
In general, the ratio of the value of labor compared to the value of capital has been decreasing, which explains why the rich are getting richer and why the older generation is suddenly better off than the younger generation. The young college graduate enters the work force with negative capital because of student loans.