Migration and financial stability: Revisiting what we know about remittances

While we champion our OFWs for being a pillar of our economy, with the top-of-mind statistics — 10% of the population, representing 10% of the GDP — many people are unaware of how remittances are being used on a daily basis. Indeed, if remittances are increasing, the skill sets of migrants and their jobs supposedly improving abroad, then should not the second, third generations left in the Philippines by now be better off? Why is poverty still so rampant? Why is there a continuing need, and not simply desire, to follow in the footsteps of the generations before and seek a better fortune elsewhere?

Several studies in Migration and Economics have shed light on how families of migrants in the home country use the money remitted. I explained in an earlier column how in countries where migrants are predominantly female, there is a tendency to use the funds as a form of “mothering from afar.” Beyond this, studies have also shown that, 1.) Income earned abroad is significantly higher and is less volatile than other income flows, 2.) Remittances can be seen as insurance products, 3.) Usage of remittances are mainly for education, repaying debt, and savings.

Income earned abroad is significantly higher and is less volatile than other income flows. An ADB study by Ang et al. (2009) showed that the average annual income of OFW households in the Philippines is about 73% greater than the average annual income of non-OFW families who are dependent on wage and entrepreneurial income. Unsurprisingly, this is enough to justify how migration is a legitimate investment strategy. Indeed, why risk becoming an entrepreneur or slave away as an employee, with no guarantee of such returns? And speaking of risk, a World Bank study has found that the amount sent back is usually not linked to the general economic situation in the host country. Meaning: migrants continue to send the same amounts home whenever possible. They keep a stable amount, similar to giving a monthly salary, to provide stability and support to the family. This mitigates the problem of instability of income flows which keep the poor, poor. One study showed that Migrants from poor countries to rich countries can multiply their real earning potential by between three and 10 times.

Remittances can be seen as insurance products. The poor face much higher risks in terms of health and other unforeseen events (e.g., losing one’s home and job) which current savings strategies and available financial products cannot mitigate. However, they do try to do as much as they can. Yet no matter the effort made in saving, these amounts are often gone or measly compared to what is needed in times of difficulties. Because the poor are unable to pay insurance premiums at regular times, remittances can combat this wherein when there is a decline or shock in the income of the recipient household, there is a corresponding increase in remittances, operating fundamentally as an insurance policy (Yang & Choi 2007).

Usage of remittances are mainly for education, repaying debt, and savings. Based on several studies in the Philippine context, including government-wide surveys, we have clearer insight as to how migrant families use their increased incomes when they have remittances. The Bangko Sentral releases consumer expectations survey every quarter and while the numbers fluctuate, generally, more than 90% use remittances to purchase food, around 70% use the funds partly for education, 65% for medical expenses, 50% for debt repayments, and a little less than 50% used them for savings. The top three allocations were food, followed by rent, and then education. These numbers are relevant in telling us the hierarchy of what the money is being used for. Several other studies have illustrated that whereas most households used remittances for food, having additional income negatively influences the share of food consumption in total expenditure and thus allow them to spend for other things. The fact that education features so strongly is important: the poor believe in education, and yet must supplement food expenditures — illustrates how households have a long way to go in being self-sufficient.

Sixty percent reported that they were able to save and 87% kept their savings in banks. Even if they were highly indebted and continued repaying debt, they nevertheless managed to save. The OFW households also appeared to have more leisure activities, own more gadgets such as computers and laptops, and were more inclined to eat out, shop, watch movies, socialize (including drinking and attending parties), travel, and go to the mall. Some even allot a budget for charitable acts. At the end of the day, one empirical study points out that a lot depends on the treatment of remittances either as permanent income (used to augment basic consumption like food) or transitory income (used to finance purchases of durable goods, repay debts, housing and housing repairs). Finally, migrants are known to have a “home bias in investing.” That is, money is used to fund entrepreneurships and investments in the home country rather than in the host country, regardless of economic conditions abroad. That is, no matter how long they have been away, they keep looking back.


Ang, A., Jha, S., & Sugiyarto, G. (2009). “Remittances and Household Behavior in the Philippines.” Asian Development Bank Economics Working Paper No. 188.

Yang, D., & Choi, H. (2007). “Are remittances insurance? Evidence from rainfall shocks in the Philippines.” The World Bank Economic Review, 21(2), 219-248.

Other References are available upon request.


Daniela “Danie” Luz Laurel is a business journalist and anchor-producer of BusinessWorld Live on One News, formerly Bloomberg TV Philippines. Prior to this, she was a permanent professor of Finance at IÉSEG School of Management in Paris and maintains teaching affiliations at IÉSEG and the Ateneo School of Government. She has also worked as an investment banker in The Netherlands. Ms. Laurel holds a Ph.D. in Management Engineering with concentrations in Finance and Accounting from the Politecnico di Milano in Italy and an MBA from the Universidad Carlos III de Madrid.

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