Growing up with Daddy's Money

For today's youth, becoming adult is harder than it used to be. With respect to yesteryear, young people nowadays are more exposed to economic adversities and, as the Pew Report on "The Rising Age Gap in Economic Well-Being" (2011) points out, there is unprecedented intergenerational inequality measured in terms of economic wealth and well-being.

This is why solidarity across generations comes into play. Transfers from adults to youngsters can be monetary, such as for the purchase of the first home, or non-monetary, as with grandparents helping with child care. There are however important regional differences in parents-to-children transfers: they are generalized and widespread in Southern Europe, rare and linked to actual need in Northern Europe.

On the other hand, there are also major differences with respect to the age when young people finally leave the household, thus becoming adults. For instance, the median age for youngsters to leave the family household is more than 30 years old in Southern Europe, while it's around twenty years of age in Scandinavian and Anglo-Saxon countries.

Agnese Vitali, Arnstein Aassve and Frank Furstenberg of Bocconi's Dondena Research Center have studied wealth inequality between generations in order to understand differences in the transition to adulthood, by comparing the US, various EU countries, and Japan.

Using harmonized micro-data supplied by the Luxembourg Wealth Study database, they show that in all the countries considered there exists a wide intergenerational gap in terms of net wealth and assets.

Italy is an exceptional case. Very few Italian young people form families before 35 years of age (10% of Italian families, as opposed to more than 20% in the US, Sweden, Finland, Japan, and more than 15% in Germany and the UK, are headed by thirty-somethings). Yet, those few Italians that set up home before turning 35 are richer than their peers in other countries: 62% of them own a home, as opposed to 15% in Germany, 22% in Sweden, 30% in Finland, 41% in the US. Only Japan (60%) displays similar rates of ownership.

The explanation for this anomaly is that, for Italian youngsters, to go and live on one's own is strongly linked to transfers of money made by parents, while such as relationship doesn't normally hold in other countries. Also, by disaggregating wealth among its various components, what emerges is that in Italian families wealth is mostly made of non-financial assets, while debt is almost non-existent for all age groups. A different picture is found in other countries, where debt bites into wealth holdings, especially for under 35 youth.

Thus Italian young people are doubly burdened: they cannot rely on a generous welfare system, and cannot rely on a credit market that gives ready access to mortgages and loans, which in turn reinforces their economic dependency on parents and further delays the abandonment of the family nest which completes the transition to adulthood.