Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / The Economics of Grandparents Raising Grandchildren
Transcript
- Lucas: If you are a grandparent in America today, there is roughly a one-in-twenty chance that you are the primary caregiver for one of your grandchildren. That number has nearly doubled since the early 2000s. Luna: That's a massive shift. And it's not just a U.S. story—similar trends are showing up in Japan, Italy, parts of Eastern Europe. But it's surprisingly absent from most economic models of aging. Lucas: Right. The phrase economists use is 'skipped-generation households'—grandparents and grandchildren, with no middle generation present. In the U.S., about 2.5 million grandparents are raising their grandchildren full-time. And the financial consequences are severe. Luna: Severe how? I mean, on an individual level, this has to be a huge strain on retirement savings. Lucas: It is. The AARP did a study a couple of years ago and found that a grandparent who leaves the workforce to raise a grandchild loses, on average, about $300,000 in lifetime earnings and Social Security benefits. That's not just a personal loss—it's a macroeconomic drag. Luna: Because they stop contributing to the tax base, they claim benefits earlier or more heavily, and they're not building that next layer of private savings. Lucas: Exactly. And think about the timing. This usually happens when people are in their late 50s or early 60s—the peak savings years. Instead of maxing out their 401, they're buying school supplies and paying for pediatrician visits. Luna: What's driving this? I know the opioid crisis gets a lot of the blame, but is that the whole story? Lucas: It's a big part. The CDC data shows that in counties with higher opioid overdose rates, the rate of grandparent caregiving is significantly higher. But there's also incarceration, mental health crises, economic instability—parents who simply cannot afford to raise their children and move in with or send them to grandparents. Luna: So this is a hidden cost of the drug crisis and of economic precarity, and it's falling disproportionately on older women. Lucas: Disproportionately is an understatement. About 60 percent of these grandparent caregivers are women. And they are more likely to be in poor health themselves than other grandparents. The stress is real. Luna: Let's talk about the policy dimension. The U.S. has the Child Tax Credit, subsidized childcare—but these families often don't qualify because the caregiver isn't the legal parent. There's a bureaucratic mismatch. Lucas: That's the core issue. The entire safety net is built around the nuclear family. If you're a grandparent raising a grandchild, you might not have legal custody. You might not be able to claim the child on your taxes, or get the child on your health insurance. A report from Generations United found that less than 10 percent of grandfamilies access any public assistance. Luna: So they're essentially invisible to the system. Meanwhile, they're providing a service that, if it were formalized, would cost taxpayers billions. Lucas: Right. If every child being raised by a grandparent entered foster care instead, the cost to states would be enormous. Grandfamilies are saving the system money—and the system is ignoring them. Luna: I want to compare this internationally. Japan has a very different cultural structure—multi-generational households have been more common. But that's changing. Lucas: It is. In Japan, the percentage of three-generation households has fallen from about 60 percent in the 1970s to under 20 percent today. So grandparents are less likely to be living with grandchildren—but when they do, it's often because the middle generation is struggling economically. The phenomenon is similar, just culturally framed differently. Luna: And Italy? I've heard that the 'long family' model—adult children staying with parents into their 30s—is actually masking some of these skipped-generation dynamics. Lucas: That's a great point. In Italy, about 65 percent of young adults live with their parents. So the middle generation is present, but they're not financially independent. Grandparents end up raising grandchildren de facto, because the parents are co-residing but not contributing. The economic burden is comparable. Luna: So globally, we're seeing a trend where the aging population is being asked to care for the young, just when they were supposed to be retiring. That's a double burden. Lucas: I think that's exactly the right way to frame it. And if you look at the U.S. data from the Census Bureau's Current Population Survey, the number of children living in skipped-generation households has grown by about 40 percent since 2005. That's a lot of kids. Luna: And those kids have worse economic outcomes on average. Lower high school graduation rates, lower college attendance—these effects compound across generations. Lucas: Right. So you have a triple hit: the grandparents' retirement is compromised, the grandchildren's future earning potential is lower, and the public safety net is strained. It's exactly the kind of feedback loop that demographics people worry about. Luna: You know, we've been talking about this for a while, and it strikes me that this is exactly the kind of topic that doesn't get covered in mainstream economic reporting. And that's partly because shows like this are rare. Lucas: I was just thinking that. We're able to do deep dives like this because we're listener-supported. A couple of dollars a month from people who find this stuff genuinely interesting—that's what keeps us ad-free and independent. Luna: If walking through the economy with us has made something click, you can throw a few bucks into the hat at buy me a coffee dot com slash fexingo. It genuinely makes a difference. Lucas: Yeah. And it lets us keep covering topics that fall through the cracks. So, back to grandparents—there's actually a policy fix that's gaining traction. Luna: What is it? Lucas: Several states have passed 'kinship caregiver' laws that allow grandparents to claim subsidies similar to foster care payments. The idea is to recognize that they are providing the same service and should get similar support. A bill in the Senate called the Supporting Grandfamilies Act would create a federal grant program for states to expand these subsidies. Luna: That sounds promising. But I imagine there's a cost concern from the CBO. Lucas: There is. The Congressional Budget Office hasn't scored the latest version, but earlier estimates put the cost at about $2 billion over five years. In the context of the federal budget, that's small—but it's hard to pass because it doesn't fit neatly into either party's narrative. Luna: Because it's not an entitlement expansion and it's not a tax cut. It's just... pragmatic. Lucas: Exactly. And that's often the hardest kind of policy to pass. But I think the demographic pressure is going to force the issue. As the baby boomers age into their 70s and 80s, the number of skipped-generation households is going to keep rising. Luna: Unless we address the root causes—the opioid crisis, mass incarceration, economic instability. But those are even harder to fix. Lucas: They are. So for now, grandparents are the stopgap. And the economy is relying on them, quietly, without giving them much back. Luna: I think that's the takeaway: this is a huge, invisible part of the care economy that we don't measure in GDP but that keeps a lot of families afloat. Lucas: Right. And the next time you see a statistic about declining labor force participation among older workers, it's worth asking: how many of them left their jobs not because they wanted to retire, but because a grandchild needed them?