“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”
I still remember the first time I was able to send money to my mother back in Honduras. I had just arrived to the US and found employment. The feeling of accomplishment and success was incredible. I imagined my mother’s excitement receiving that money with pride and gratitude knowing her son was doing fine in another country. I felt empowered to know that those few dollars would become a much higher amount of Lempiras (Honduran currency) in Honduras, and my mother would be able to afford more of the everyday necessities. These feelings of fulfillment and accomplishment are ones every immigrant to the United States is familiar with.
Money sent by people from one country to another is called remittances. Remittances have become a major phenomenon in international finance, as the amount of money being sent to other countries has increased exponentially. Remittances sent by migrants have doubled in the last decade. According to the Pew Research Center, in 2015, worldwide, an estimated 582 billion U.S. dollars was sent by migrants to relatives in their home countries. Mexico is the largest recipient of remittance with an estimated amount of more than $25 billion in 2016. A study conducted by the Inter-American Development Bank (IDB) in 2004 reveals that over 60% of the 16.5 million Latin American-born adults who resided in the United States at the time of the survey regularly sent money home. The remittances sent by these 10 million immigrants was transmitted via more than 100 million individual transactions. Each transaction averaged about $150-$250.
There is no other method of financial transfer to poor countries that has been as effective as remittances. No governmental aid from developed countries to poor countries; no private loans for capital development; no debt relief for the indebted poor countries by the IMF and World Bank, Debt Relief Under the Heavily Indebted Poor Countries; and no foreign direct investments by companies have affected the living standard of the poor in developing countries. These remittances have exceeded private capital flows and official development assistance to poor countries. These remittances go directly to the poor people who need the money right away.
Remittances are, in many instances, the only source of income many families receive. The obvious benefit is the improved livelihood and welfare of the families receiving them. The recipients commonly spend the funds on necessities such as health, education, food, and clothing. Furthermore, the consumption caused by the remittances increases the economic activities for many impoverished towns in poor countries, creating an economic and financial multiplier in those towns.
Remittances have reduced poverty levels in several poor nations. One study of seventy-one developing countries found that a per capita increase of 10% in international remittances leads to a 3.5% decline in people living in poverty. In another study, the World Bank concluded that remittances have been associated with reduced poverty in several low-income countries such as Uganda (11% reduction), Bangladesh (6% reduction), and Guatemala (20% reduction).
Another positive impact of remittances is that it is cyclical. When countries suffer from catastrophic effects like hurricanes, earthquakes, and flooding, the amount of money sent by the migrants to their families and home countries increases. Given that there is no government or private institutions intervening in controlling or directing these monies, those in need receive immediate aid.
For many of the developing nations they flow into, remittances can increase the national gross domestic product (GDP) by a significant percentage. For example, in 2000 the U.N. reported that remittances increased the GDPs of El Salvador, Jamaica, Jordan, and Nicaragua by 10%. Also, the World Bank reported that remittances accounted for approximately 25% and 12% of Haiti and Nicaragua’s GDP, respectively. Without the flow of remittances these countries would suffer loss of purchasing power in their population, weak domestic currency value, and inflation.However, remittances are not a panacea for the elimination of poverty. Recipients of remittances would benefit from financial education in this regard. A study done on twenty-two migrant communities in Mexico reported that only about 10% of remittance funds were invested or saved. While the money received was able to raise the standard of living for the remittance recipients, this is a short-term situation if they do not learn to manage their money. In some cases, these remittances may create the illusion of “easy money”—just like a permanent allowance to be received every month—and that they can sustain the same level of improved consumption forever. This attitude will be catastrophic for them in the future. If, instead, the impoverished recipients of these remittances treat them like a short-term financial resource that can be used for personal and family education, for starting small businesses, and investing for the future, they will be able to eradicate their poverty permanently. Financial education is of utmost importance for them to know how to manage, save, and invest for future personal economic growth. They need to be taught how to fish while they still have the financial resources to do so.