By: Caitlin Sanford and Rebecca Rouse
Mexican families incorporated more than $24.8 billion in international remittances into their household financial portfolios last year. But how much do we know about the way that this money is spent, saved, and invested over time? The Remittances and Savings Program of the Multilateral Investment Fund partnered with Bankable Frontier Associates (BFA) to examine the cash flows of 16 households in the Mexico Financial Diaries that received international remittances. The findings of this study, available for download here, help dispel three common misconceptions that many may have about migrant remittances:
MYTH: Remittance recipients are completely dependent on remittances for survival.
FINANCIAL DIARIES: One might think that a typical Mexican household that receives remittances from the US would rely almost exclusively on this income. While this may be the case for some families, international remittance recipients in the Financial Diaries draw on a number of income-generating activities in addition to remittances. These 16 households earned income from an average of 6.5 different sources per household during Financial Diaries study. Such activities include full-time jobs, running small businesses, selling agricultural products, and doing odd jobs around the community. In addition to receiving money from the US, six of these households also received payments from family members living in Mexico.
MYTH: Remittance transfers are monthly and stable, and substitute the effects of a fixed salary on household consumption.
FINANCIAL DIARIES: Another assumption is that migrants working in the US send remittances regularly, for example on a monthly basis. In fact, most of the 16 households we profiled received remittances irregularly. The study found that the number of remittance payments spiked around July and August, ahead of the school year. Moreover, both the value and the number of payments increased around the December and January holidays. Financial Diaries households tended to receive money sporadically, and when they asked for it, rather than on a regular schedule. Interviews revealed that migrants struggle to send money at regular intervals due to the instability of the kind of work they do in the US. As one respondent explained:
“[In the US] jobs are not permanent. [Our family members] work on building condominiums and residences and sometimes [the bosses] move the workers around or fire them.” – “Marisol,” Oaxaca
MYTH: Remittance recipients “waste” remittances on luxury goods and other “unproductive” uses.
FINANCIAL DIARIES: Because of the range of expenses these families face on a daily basis, little money is left over for “luxury” items. According to interviews, the fact that remittances are largely used for consumption and meeting basic needs— including food, medicine, and education— rather than on investments in productive assets does not belittle their impact in improving quality of life for these families. Households we spoke with also asked for money urgently for various emergencies during the course of the study period including dental work for a son; medicine; doctor and pediatrician visits; paying for damages after a car accident; and hospital treatment after a family member fell from a construction site. In these cases, remittances served as a type of informal insurance for the family that could be drawn upon in the case of an unexpected expense.
The Mexico Financial Diaries were made possible by the Bill & Melinda Gates Foundation, BANSEFI, and Gesoc A.C. Read more about the findings, and discover implications for financial services and remittance providers here.
Researcher at Bankable Frontier Associates (BFA), a consulting firm based in Boston, United States. At BFA she designs and manages qualitative and quantitative research on financial behavior of low-income households and transforms these findings into recommendations for financial services providers and regulatory authorities. Sanford holds a BA from Stanford University and a Master in Economics and Public Policy from the Woodrow Wilson School of Princeton University.