Parental transfers to young adults: impacts and implications for redistributive policies

Fabre, Brice; Jacquetin, Florian; Loisel, Nolwenn; Puschnig, Lukas; Dutronc-Postel, Paul; Duchesne, Sylvain

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Parental transfers to young adults: impacts and implications for redistributive policies

Brice Fabre, Florian Jacquetin, Nolwenn Loisel, Lukas Puschnig, Paul Dutronc-Postel, Sylvain Duchesne

July 2023

This report, commissioned by the Federation of Social Housing Organisations (ESH), aims to quantify the redistribution measures to be put in place for young adults, in order to inform the public debate.

Reference IPP Report No. 44

Quote this publication

Duchesne, Sylvain, Dutronc-Postel, Paul, Fabre, Brice, Jacquetin, Florian, Loisel, Nolwenn, Puschnig, Lukas (July 2023). ‘Parental transfers to young adults: impacts and implications for redistributive policies’, IPP Reports, No. 44. Institut des politiques publiques (IPP).

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Presentation

Young adults are particularly affected by economic and social difficulties, notably poverty and unemployment: according to INSEE, 18–24-year-olds are the age group with the highest poverty rate. This raises the question of what redistributive measures should be put in place for young adults.

At the same time, young adults’ resources are difficult to measure for several reasons, notably because they may receive financial support from their families.

More broadly, there is the question of the age at which financial independence is achieved and how this should be defined within the context of redistribution schemes.

This report has the following objectives:

to estimate the parental transfers received by young adults
to provide a precise description of the income levels of young people aged 18 to 24, taking these transfers into account
to analyse how these social transfers interact with two social benefit schemes: housing benefits, on the one hand, and the RSA (Revenue de Solidarité Active), on the other, assuming it were available from the age of 18.

The study focuses on young adults (aged 18–24) who do not live with their parents, i.e. who have their own accommodation.

Key Results

The resources available to young adults are relatively poorly understood and inadequately taken into account in poverty measurements, which are based mainly on income declared to the tax authorities. Parental transfers, which can be significant for young adults living away from their parents, are not taken into account in these measures; consequently, student households are excluded from the calculation of the poverty rate.
According to the findings of this report, the monetary poverty rate (the proportion of these individuals living below the poverty line) stands at 33.4 per cent for young adults living away from their parents, based on the standard method of calculating the poverty rate. When student households are included, and parental transfers are then taken into account, the rate stands at 39.0 per cent. Thus, even when parental transfers are included in the analysis, adding student households results in a significant increase in the measured monetary poverty rate. Overall, these estimates provide further evidence that young people living away from home are particularly affected by poverty. Nevertheless, an analysis of income distribution highlights the importance that parental transfers can have on the standard of living of young people living away from home. For example, 30 per cent of young people living away from home are among the 1 per cent of individuals with the lowest standards of living. When parental transfers are included, this proportion falls to 12 per cent. Overall, regardless of the measure of poverty considered, young adults living away from home are severely affected by poverty and remain significantly over-represented among the 50 per cent of individuals with the lowest incomes.
This report then examines the implications of parental transfers in terms of social protection policy for young people. Young adults’ access to social benefits is indeed the subject of recurring debate, particularly with regard to the RSA, which is currently available to those aged 25 and over. A crucial question is that of financial independence – in other words, the point at which a person’s situation can be considered distinct from that of their parents. Deeming a young adult to be independent may result in benefits being paid to a young person who, in reality, still relies on their parents’ income, whilst deeming them to be dependent may mean that no support is provided to a young person without family support who is genuinely in need. This issue also raises, first and foremost, the question of the age at which a young adult should be considered independent.
This study analyses the extent to which a means-tested social benefit, which cannot take these parental transfers into account in its calculation (this study uses survey data on this subject), can target individuals whose income level—including these transfers—exceeds the targeted income thresholds. Two social benefits are examined: housing benefits, on the one hand – which are available on a means-tested basis to all young adults – and the RSA (Revenue de Solidarité Active), on the other, for which the minimum age of eligibility under ordinary law is 25.
The vast majority (98 per cent) of young people living away from their parents who receive housing benefit fall within the top 40 per centile, in line with the scale for these benefits. When parental transfers – which are not taken into account in the calculation of housing benefits – are included in young people’s standard of living, this proportion stands at 82 per cent; in other words, 18 per cent fall above the 40th percentile. In terms of amounts paid, 17 per cent of the total housing benefit paid to young people living separately from their parents is allocated to those situated above the 40th percentile after parental transfers.
If we were to simulate an RSA scheme with a minimum eligibility age of 18 and means-tested conditions identical to the current scheme, the potential new beneficiaries amongst young people living independently would, prior to parental transfers, fall within the first 12 centiles. Thirty per cent would fall above these top 12 per centiles after transfers. The latter group would account for 28 per cent of the new RSA expenditure paid to young people living away from their parents.
Overall, the fact that parental transfers are largely excluded from the means tests for these two schemes naturally creates discrepancies in targeting, if these transfers are included in the means test. Nevertheless, around three-quarters of expenditure remains within the same income bracket, and nearly half at the same hundredths level.

Method and Data

Taxipp Microsimulation

This study utilises the TAXIPP socio-fiscal microsimulation model, supplemented by data specific to young adults drawn from the National Survey on Young People’s Resources (ENRJ) produced by Drees. This analysis provides a dataset covering all young adults, including those in non-standard households, and allows for an estimate of the parental transfers received by each of them, as well as an estimate of the transfers made by each parent of at least one young adult.