Remittances: A Factor for Family Well-Being
Antonio Alba Meraz, Extension Educator — Family Resiliency
March 2017. Reviewed April 2017 by Jose Lamas, Financial Capability Educator — Family Resiliency; and Sara Croymans, Extension Educator — Family Resiliency.
Remittances or money transfers are a crucial link between migrants and the individuals and families they leave behind.
What Is a Remittance?
Remittances, also known as “international wires” or “international money transfers,” are transfers of money between individuals living in different countries. A remittance or remittance transfer, as defined by U.S. law, includes most electronic money transfers from consumers in the United States through “remittance transfer providers” to recipients abroad.
The business that operates the transfer of money, a remittance transfer provider, is defined under federal law as a business that transfers money electronically for consumers to people and businesses in foreign countries. To learn more about how to send remittances and how much it costs, read Sending Money Abroad.
Who Sends Remittances?
According to the World Bank’s Migration and Remittances Factbook 2016, more than 250 million people, or 3.4 percent of the world population, lived outside their countries of birth in 2015. In the same year, global remittances flows are estimated to have exceeded $601 billion, $441 billion of which went to developing countries. The United States is the top destination for migrants and has the largest outflow of remittances.
Remittances to Mexico
According to Minnesota Compass (2017), the largest group of foreign-born residents in Minnesota is from Mexico. Remittances to Mexico from the United States have decreased since 2006, when they peaked at $30.1 billion. Two reasons were the decline of the Mexican population coming to the United States and the return of immigrants to Mexico. Other influencing factors have been the improvement of the Mexican economy and a decrease in population growth in Mexico (Cañas & Orrenius, 2016).
Evans and Klaehn (2004) cited a 2003 Inter-American Development Bank survey showing that 78 percent of Mexican remittance recipients used this money to cover basic needs such as rent, food, and health care. Eight percent saved the money, seven percent used the funds to pay for education expenses, one percent invested the remittance in a business, and another one percent of the remittance recipients used the funds to acquire land.
In a recent study, Solheim, Rojas-Garcia, Olson, and Solis Zuiker (2012) reported that remittances sent to Mexico by immigrants in Minnesota were used to pay basic living expenses and debt repayment. Paying that debt was a priority and in many cases included the cost of the immigration journey. Solheim et al. also report that remittances are sent mostly to female family members in lower-income rural areas who have lower levels of education and live in households with six or more people.
The Impact of Remittances on Individuals and Families
Remittances are a vital resource for home countries. The money from abroad contributes to satisfying basic human needs of individuals and families in the country of origin, which helps them improve their well-being and gives their relatives in the United States peace of mind.
- Poverty Relief — Families from developing countries benefit from remittances because they contribute indirectly to poverty relief (Haas, 2007; Western Union, 2012). When people send money, it multiplies. For example, a basket of groceries that costs $35.41 in St. Paul, MN would cost only $23.60 in San Salvador, El Salvador. Ratha, Eigen-Zucchi, Plaza, Wyss & Yi (2013) shows remittance-receiving households are financially better off across multiple dimensions, have higher incomes and lower incidences of extreme poverty compared to similar households who do not receive remittances.
- Crisis Mitigation — Remittances help people during economic downturns and other crises such as political and civil crises and natural disasters (Haas, 2007; & Ratha, 2013). Maldonado and Hayem (2015) observed that after the past global recession, remittances’ growth to the Caribbean, particularly to Haiti, increased following the earthquake in 2010.
- Childhood Education — Ratha (2013) compiled evidence showing that remittance-receiving households invest in child education more to a greater extent than non-remittance receiving households.
- Health Care — Research shows that recipients of remittances can use them to access and pay for health care. Researchers found that children in remittance-receiving households in Mexico and Sri Lanka had higher birth weights, were less likely to die in infancy, and higher weight during early childhood than children whose families didn’t receive remittances (Ratha, 2013).
- Thinking Ahead — Evidence exists that remittances are a way to save for unexpected events (Ratha, 2013). Also, remittance recipients may show a potential to learn financial capability. Samuels (2003) showed that remittances could be a mechanism for unbanked immigrants to start using financial services.
The Impact of Remittances Worldwide
United Nations researcher Hein de Haas (2007) reported that in most developing economies, remittances are an important part of the flowing in of economic resources. Other economic inflows are foreign direct investment and overseas development assistance (ODA). Remittances surpassed ODA in 1997, and by 2013 were nearly three times the size of global ODA (Ratha et al., 2013).
Remittances to developing countries help to substantially elevate the Gross Domestic Product (GDP) of those countries (Western Union, 2012). Tajikistan, Kyrgyz Republic, Nepal, Lesotho, and Moldova are the top five countries in which remittances were more than 24 percent of their GDP (Ratha et al., 2013).
The important role of remittances in the lives of individuals and families from many countries is evident. Many studies confirm that remittances or money transfers are a part of the global cooperative relationship between the involved countries. In addition, remittances contribute directly to the improvement of individual and family well-being, as well as support to the social, economic, and political stability of developing countries worldwide.
Cañas, J. & Orrenius, P. (2016, First Quarter). Remittances to Mexico Fall as Immigration, Income Stagnate. Southwest Economy, 15.
Consumer Financial Protection Bureau (n.d., a). Ask CFPB: Money Transfers: What is a Remittance Transfer?
Consumer Financial Protection Bureau (n.d., b). Ask CFPB: Money Transfers: What is a Remittance Transfer Provider?
Evans, A. C. & Klaehn, J. (2004). A Technical Guide to Remittances: The Credit Union Experience. World Council of Credit Unions.
Haas, H. D. (2007). Remittances, migration and social development. Social Policy and Development Programme Paper, (34).
Maldonado, R. & Hayem, M. (2015). Remittances to Latin America and the Caribbean Set a New Record High in 2014. Washington, D.C.: Multilateral Investment Fund, Inter-American Development Bank.
Minnesota Compass. (2017). Immigration: Population Trends.
Ratha, D. (2013). The impact of remittances on economic growth and poverty reduction. Policy Brief, 8, 1-13
Ratha, D., Eigen-Zucchi, C., & Plaza, S. (2016). Migration and remittances Factbook 2016. World Bank Publications.
Ratha, D., Eigen-Zucchi, C., Plaza, S., Wyss, H., & Yi, S. (2013). Migration and remittance flows: Recent trends and outlook, 2013–2016. Migration and Development Brief, 21(2).
Samuels, G. (2003). Banking unbanked immigrants through remittances. Communities and Banking, (Fall), 3-8.
Solheim, C.A., Rojas-Garcia, G., Olson, P.D. & Solis Zuiker, V. (2012). Family Influences on Goals, Remittance Use, and Settlement of Mexican Immigrant Agricultural Workers in Minnesota. Journal of Comparative Family Studies, 43(2), 237-259.
Western Union. (2012). The Economic Benefits of Remittances: A Case Study from Poland.
Sending Money Abroad — Learn what a remittance is, how to send one, and why they're important.