As Latino and Hispanic Heritage Month comes to an end, we are continuing our recognition of these important cultures in our communities by discussing the essential role of remittances in Latino and Hispanic American finances. According to a brief from World Bank Group, in 2023, remittances to Latin America and the Caribbean saw the highest increase of any region at 7.7%, reaching a record $155 billion, primarily from the U.S.
In this post, we will be discussing the significance and benefits of remittances, challenges, and tips for people who send remittances.
The Significance and Benefits of Remittances
Remittances are often an important part of the lives of immigrants and their families. Many of these transfers of money are from people living and working in the U.S. and are sent to family and friends in other countries. They have become an essential part of community care and support, and they provide a bolstering to these countries’ economies.
These figures from World Bank Group show how prevalent remittances are in Latin American and Caribbean countries:
Mexico was the country that received the second-largest amount of remittances globally, at over $66 billion in 2023.
Nicaragua’s remittances grew by a whopping 45% in 2023, which represents 27% of the country’s GDP. This is likely the result of a surge in emigration in 2022-2023.
Remittances are typically a stable source of income that reduces the government’s need for overseas borrowing in a crisis, and they are often sent to the poorest states, helping to mitigate some regional economic disparities, according to the Federal Reserve Bank of Dallas. Much of the time, remittances help people to support their families with:
The Current Challenges with Remittances
One of the biggest challenges with remittances is hidden fees. This is often due to misleading advertising from international money transfer providers that claim to have low or no fees, but actually hide these fees in inflated exchange rates.
According to Wise, Americans have lost $15.4 billion to hidden exchange rate mark-ups.
A UnidosUS servey found that 67% of Latinos either didn’t know remittance providers could add fees through exchange rate mark-ups or weren’t sure.
Luckily, the U.S. is taking steps to address these issues, with the Consumer Financial Protection Bureau (CFPB) issuing a warning to remittance providers and banks earlier this year about hidden fees possibly violating federal law.
Even outside of hidden fees, the cost to send money from the U.S. is around 5.8% per transaction, which can really add up. Because of the value of remittances in supporting struggling countries and the global economy as a whole, one of the United Nations’ Sustainable Development Goals is to reduce remittance costs to below 3% by 2030.
Tips for Sending Remittances
While sending remittances can be costly and challenging, there are ways to send remittances that can maximize their impact.
Here are a few tips if you're sending remittances to your communities outside the U.S.:
Compare providers: Compare exchange rates and service fees for the providers that are available to you, just like you would with any other product or service.
Consider digital options: Many online services have lower fees than traditional banks.
Pay attention to exchange rates: If you are able to plan ahead and send larger amounts less often when exchange rates are working in your favor, that can make a big difference in how far the money you send is able to go.
Set a spending plan: There can be a lot of pressure when you feel like you have people relying on you for aid, but the best way to make sure that aid is sustainable is by building it into a spending plan that meets your own needs as well. You should be saving for your own cushion of 2-6 months of expenses to make sure that if something happens, you are still able to support yourself, which will in turn help you better support the people you care for long-term.
Manage expectations: Unless necessary, the goal should not be for the people you are sending remittances to completely rely on those funds long-term. Fidelity suggests helping family members with education and support toward financial independence as well as managing expectations by making sure you’re on the same page, setting a specific amount you’ll send, and offering potential circumstances that they can ask for more (with the understanding that you may not always be able to accommodate those requests).
Remittances to Latin America and the Caribbean have steadily grown over the last several years and continue to be a crucial lifeline to many of these countries. This Latino and Hispanic Heritage Month and beyond, it is important to acknowledge the essential role remittances play in supporting families. At Self-Help, we believe in ownership and economic opportunity for all, which means working to financially empower our Latino and Hispanic American communities as you navigate how best to support the people you care about.