How do Remittances Benefit Social Growth?

World Savings Day was introduced in 1924 to raise awareness of the importance of saving money, at both an economical and individual level.  For many nations and individuals, the movement of money internationally can prove vital to create and sustain financial stability. Remittances can be a vital tool not only to help build savings abroad, but to build social growth in these countries. 

“Remittance” refers to any non-commercial money transfers sent from abroad to a “home” country. These transfers are typically sent by members of a diaspora community or a citizen with family members abroad, and are sent as additional household income for that home country. 

WorldBank recorded that remittance flows to low and middle-income countries (LMICs) are expected to increase by 4.2 percent this year to reach almost £5.45billion. The latest available data from the World Migration Report 2022 estimates that there are around 169m migrant workers, 67% of which reside in high-income countries.

 While maybe understood at an individual, emotional level, it is important to consider that hundreds of millions of individuals have created an industry by their daily activities and sense of obligation to home. We’ll explore a few ways this behavior impacts greater, global culture in this article, including how remittances affect social change in their destination countries.

What remittances mean to families: 

What do remittances mean for the families who receive them and how are they commonly utilised? In a recent survey, when speaking to 3,000 international money senders, the main reasons people sent remittances included: 

• Daily expenses
• Medical expenses
• Education
• Gifts
• Rent/mortgage payments
• Utilities payments

The findings above are supported by a report by Oxford Economics, which found similar areas of utilisation for money received from overseas. 

Remittances provide additional income and help with essential purchases, which can help to combat poverty in certain instances. In nations like Zimbabwe and Jamaica, where remittance inflows most recently accounted for more than 10% and 20% of the countries’ respective GDPs, remittances can act as an economic stabiliser.

For longer term stability, these remittances can also go towards investments like healthcare, education, business investments and property.

In short, remittances are beneficial for families both in an immediate sense and in the long-term. When remittances are sent for necessities like food and utilities, they serve as a lifeline for many families, and when they go towards property or education, they contribute towards improving quality of life for years to come. 

International remittances have, on average, increased education spending by 35% across Asia and sub-Saharan Africa, and by 53% in Latin America. 

Remittances, economies and country development

The three countries that receive the most money from remittances are India, China, and Mexico.  However, the countries where remittances make up the highest percentage of total gross domestic product (GDP) are Tonga, Haiti, and Lebanon.

 A high percentage of GDP coming from remittances creates a dependency  on this money flow in a way that can make societies vulnerable. However, in time and as economies grow, countries with a high remittance flow can become less reliant on them, as has been the case in Nigeria.

The “multiplier effect”

We’ve covered the more immediate effects of remittances and the long-term ways they aid economic growth – now it’s time for some numbers.

The remittance multiplier effect refers to how quickly or slowly money contributes to the economy of the country it’s sent to. On average, according to the Oxford Economics study previously mentioned, the “multiplier effect” is placed at 0.4. Alone, this figure may not mean much at all but essentially what it means is that for every USD $1 sent, there is an increase of around USD $0.40 in the final GDP. 

So, no matter how much money you send home to your loved ones, you’re providing some vital support to the economy of the country they’re in. Whether you send for education, utilities, or just for a little extra treat, WorldRemit is here to help. Send money home through our app or on our website and see your contribution supports so many people back home.