Almost one out of six Americans are at least 60 years old. One quarter of the adult population is approaching, or has reached retirement. America’s elderly population is constantly growing and its members are living longer than in years past (Benston, Mills, & Parrot, 1995). With these facts at hand, it is easy to see why there has been an increasing focus on the economic status of the elderly and how they are being provided for financially. More specifically, in recent years, there has been much debate over the role of children serving as a form of old-age security for the elderly in the United States. This has come to light as a result of the increased concerns over the effectiveness of programs for the elderly, such as Social Security. There is increasing evidence that contributions from their children are overcoming the inadequacies of these programs in order to keep the elderly out of poverty in this country.
In their paper, “Income, Wealth, and Intergenerational Economic Relations of the Aged,” Douglas Holtz-Eakin and Timothy Smeeding (1994) summarize what is known about the economic status of the aged. They break this knowledge down into three categories dealing with income, consumption, and poverty, wealth, and intergenerational economic relations.
In the section termed “income, poverty, and consumption,” the authors present data that indicates an increase in the well-being of the elderly as a group over the past 20 years.This group has experienced a higher rate of increase in average income and a faster reduction in the official (income-based) poverty level than the non-elderly group. At this point, the authors emphasize their use of the term “group.” The elderly population is a heterogeneous group, and a blanket statement about their population does not apply to every elderly person. For example, the poverty level for married men is much lower than for widowed females. Likewise, minority groups such as blacks and Hispanics have a much higher poverty level than non-Hispanic whites.
However, on a broader scale, the outlook for elderly poverty is not as encouraging. In a study that looked at the status of the elderly in eight countries, it was found that the United States has the highest elderly poverty rate and does the least adequate job of preventing elderly poverty out of the countries studied. This is cause for concern because the elderly population (age 85 and over) is the fastest growing age group in the United States. Since we know that poverty rates among the elderly increase with increasing age, we can only predict that the poverty levels of the American elderly will become higher with the growing cohort of the oldest elderly.
In their next section, Holtz-Eakin and Smeeding indicate that wealth probably plays a more prominent role than income for the elderly in terms of their economic status. Unfortunately, research on wealth and the elderly is sparse. Data indicate that about 40 percent of the total net worth of elderly is based on home equity. There is also some evidence that shows that assets decline uniformly with increasing age, and that the elderly do dissave, although at a relatively slow rate. Because these dissaving rates are low, some studies predict that most elderly people will have positive net balances at death. Overall, the studies that have been conducted for wealth indicate that it is unequally distributed among the elderly by income and race. More specifically, the wealth of higher income elderly is great, while the wealth of minorities is low. We also have to keep in mind, when looking at this data, that most all of it was collected during the same time period (mainly 1983 to 1988). These few years, which were marked by dramatic changes in the value of wealth, may not be representative of the present-day situation of elderly. Overall, little is known about the wealth of the elderly, despite the fact that it most likely plays an integral role in the economic status of this age group.
Lastly, this paper looks at the intergenerational transfers that occur between children and the elderly. There is a large body of literature on intergenerational transfer programs, such as Social Security, as well as individual transfers within families. The evidence suggests that bequests across generations (from parents to their children) reach between 30 and 40 billion dollars a year and account for approximately half of the wealth accumulation of the younger generation. Financial transfers also occur in the opposite direction (from children to elders). Data indicate that roughly 20 percent of elderly people receive financial transfers (such as payment for in-home personal care and medical technologies in the home) from their adult children. This body of literature indicates a substantial financial contribution by children to their elderly parents. Despite much research in this area, the motives behind these transfers remain unclear. The two main competing theories behind these motives are that it is a purely altruistic act and that it is an act that compensates for a particular service provided by the recipient of the transfer.
The authors of this article conclude that not enough is known about the economic situation of the elderly to make a prediction for their future. The “elderly” age group is also largely heterogeneous, so they are reluctant to make a broad statement that is meant to apply to the entire group. The authors believe that too much emphasis has been placed on researching the income of the elderly; they believe that more concentrated efforts should be made on the wealth of the elderly, as this is more likely to play an important role in their economic status. It is also suggested that more cross-national studies be conducted in order to broaden the scope of our knowledge about the economic status of the elderly. Lastly, the authors claim that our understanding of cross-generational transfers must be strengthened in order to predict whether governmental programs, such as Social Security, or familial transfers from child to parent are more helpful in keeping the elderly population above the poverty level.
In an article by Vern Bengston, Teheran Mills, and Tonya Pratt (1995), there is a focus on what the authors call a “cultural/structural lag” that accompanies a rapid aging of the U.S. population. A “cultural lag,” proposed by William Ogburn, proposes that cultures change more slowly than do the characteristics of a particular population. The authors of this paper use this same theme to propose the existence of a “structural lag” in the United States. To demonstrate this theory, they use an example of American families and their elders. Theories prevalent in this country propose the decline of family structures in the United States, leading to an almost purely parent-child household, with weak bonds between generations. However, empirical evidence suggests that intergenerational bonds are perceived to be strong by most family members in America. This research also indicates that between 60 and 80 percent of long-term care for the elderly is provided by their family members. The structural lag is obvious in this situation: present-day assumptions indicate a decline in the American family, but empirical evidence indicates otherwise.
This article also elaborates on how old-age policies at the Federal level are in a decline, which could lead to trouble for the future of old-age security provided by the government. As of 1995, most federal programs for the growing population of elderly were either being maintained at current levels, decreased, or eliminated. For example, the long-term outlook for both Medicare and Medicaid (medical programs for the elderly) is poor, with predictions that Medicare will be in deficit in the coming 7 years. In terms of social services, funding from the older American Act of 1965 has diminished, with funds now only going to people with the greatest need instead of all elderly. This paper also predicts that the Social Security program will be in deficit by the year 2029, and that considerations are currently being given to only handing out Social Security payments to those most in need, rather than everyone who contributed to the program during their working years.
In a paper by Michael Rendall and Raisa Bahchieva, there is a focus on the inadequacies of poverty measurements in the United States. Specifically, the authors argue that these inadequacies “mask” the effects that familial ties have in keeping the elderly out of poverty. First, the authors claim that current measures of poverty do not reveal relationships based on financial dependence within the household. For example, the authors estimate that without coresidence within the family, poverty rates among the elderly would increase by nearly 40 percent. This estimate suggests that family members may fill the gaps that are left by programs such as Social Security and pensions. This, in turn, could be used in favor of the argument that children act as old-age security for the elderly. That is, the more children one has, the better the chance that he/she will be provided for in old age.
Second, the authors argue that the current means of measuring poverty do not recognize the household labor that is needed in order to convert purchased goods into realized consumption. For example, in a household with a disabled elder as a member, the resource needs of the household are not defined in any way by the financial needs of the disabled elder. They are defined only by the consumption goods. Due to these two main flaws in the measurement of poverty, Rendall and Bahchieva make the observation that, while Social Security is currently viewed as keeping many elderly out of poverty, the contribution on the part of the family members remains unnoticed. They go on to claim that the United States Social Security program will not be sufficient means to keeping the unmarried and disabled elderly out of poverty.The role of the family is crucial to the well-being of these groups.
A fourth article, by Michael Rendall and Alden Speare, Jr. (1994), focuses on estimations of the extent to which elderly people live with and rely on their children for support and services after retirement and what effect this has on poverty alleviation. There have been dramatic reductions in elderly poverty levels in the United States in the past two decades. However, many elderly are still living just barely above this level. The old-age security hypothesis says that children act as insurance against poverty in old age. This paper aims to estimate the importance of the old-age security hypothesis in elderly poverty alleviation.
The existing literature does not offer a clear and concise conclusion about the extent of co-residential and family-support offered to and used by the elderly population. Therefore, the authors propose a set of two equations in order to make the relationship more clear. Specifically, they use the income-asset resource-allocation model of Rendall and Speare to derive the equations. These equations take into account some of the variables that the current poverty measurements do not include (as was mentioned earlier in this discussion). Through use of these equations, the authors estimate that without extended family co-residence, the elderly poverty rate would increase by 42 percent over the observed rate. They claim that this is a fairly conservative estimate and should be considered a lower bound, with actual percentages most likely being even higher. Further, the authors estimate that 12.9 percent (or 3.2 million) of the United States elderly would be poor without co-residence with other family members. When broken down into categories, these numbers are disproportionately high for women and minorities. These findings, through the use of their two equations, lead the authors to conclude that the extended family plays a substantial role in the economic well-being of the elderly.
In conclusion, the articles that I read all generally agree that the extended family of the elderly (especially their own children) play an important role in promoting the economic welfare of this population. Current measures of poverty do not take into account all of the expenses that elderly people encounter. Thus, the measured poverty level of the elderly is lower than what is actually present. If it weren’t for co-residence and familial support, a much higher percentage of the elderly would be in poverty, regardless of the assistance they receive from governmental programs such as Social Security. These governmental programs seem to be headed for financial trouble in the relatively near future, so other forms of support may have to take the place of or bolster these programs. One such form of support may be to use children as old-age security (through co-residence and family-support), which already seems to be prevalent in contemporary American society.
Douglas Holtz-Eakin and Timothy M. Smeeding, "Income, Wealth and Intergenerational Relations of the Aged" in Linda G. Martin and Samuel H. Preston, (editors) Demography of Aging, National Academy Press, Washington, D.C., 1994, pp. 102-145.
Vern L. Bengtson and Tehran L. Mills, "Ageing in the United States at the End of the Century", in Korea Journal of Population and Development, Vol. 24, No. 2, December 1995, pp. 215-244.
Michael S. Rendall and Alden Speare, Jr. "Elderly Poverty Elimination through Living With Family" in Journal of Population Economics, Vol. 8, 1995, pp. 383-405.
Michael S. Rendall and Raisa A. Bahchieva, "An Old-Age Security Motive for the United States?" in Population and Development Review, Volume 24, Number 2, June 1998, pp. 293-307.