Rethinking Finance


In the headlines this past week was the fact that March remittances rose by 4.9% year on year for the second straight month, but still disappointed considering what economists were predicting, which was a median estimate of 8.2%. Still, that print highlighted the importance of OFW healthcare workers in particular, but also those in construction and other services — in not only helping their host countries recover from the pandemic, but ultimately in directly aiding the weak consumption domestically. As we think about how dependent we are on those abroad — especially in times of economic downturns — I would like to begin a series on a project I had worked on while living in Paris, examining the financial strategies of OFWs. The title of that project was “Migration and Financial Stability”; its core message is this: Migration is an investment strategy, just like investing in a home, or investing in the stock market — one that is high risk but also high return. But not every migrant achieves their goals because of a host of factors like over-indebtedness, cultural barriers, and lack of financial literacy training. Let us try to dig deeper.

In today’s globalized and increasingly connected world, migrants mainly originating from poorer countries now form a significant percentage of the developed world’s labor force. The number of international migrants in 2020 was around 272 million according to the World Bank. The key motivation of migration is no big surprise. Whether they come in legally or illegally, as skilled professionals, as unskilled laborers, or as refugees escaping war, almost all migrants leave their home countries and move abroad to seek a higher income or a better job and life prospects. Importantly, they seek this not only for themselves, but also often for their family members whom they have left behind. At the heart of it, migration addresses the most basic grand challenge we face: global poverty.

Remittances — the stream of money sent back to the home country by a migrant — feature predominantly in such studies. Global remittances are a substantial driving force for the economic development of such countries. However, to date, remittance flows have been treated in the economics literature as windfall income, similar to winning a lottery and have only been examined at a macroeconomic level. This has been useful in shedding light on the fact of whether migration has an overall positive effect on the aggregate poverty levels in the home country. Yet, we largely miss research on a household level and the mechanisms underlying how people are financially better-off because they have migrated. Understanding the use of remittances at a household level is crucial to having a deeper knowledge of how the poor can achieve financial stability through migration, especially since this is often their main goal. The first step to know this is to explore how such remittances come into being at the source, through the financial behaviors and strategies of the overseas foreign worker (OFW).

All OFWs share one specific quality: the dichotomy of “home”; that is, the feeling of being in one place with a heart left somewhere else; and they face the eternal struggle of having to integrate in the host country while maintaining ties to their roots and the people they have left behind. This struggle tends to characterize the behavior of such people and plays a major role in all the choices that they make in their everyday lives. Digging deeper, it is important to understand how OFWs manage their income transnationally — sustaining a life in their host countries while supporting their families abroad. What are the factors that affect the choices they make in their everyday lives? What are their savings and investment goals?

This series addresses the above questions through a case study of Filipino migrant workers living in Paris. The Philippines is the third largest recipient of remittances in the world. I examined the migrants’ reasons for migration, how they financed their migration and the risks they took, as well as the aftermath and daily lives that contributed to their economic stability and future, whether in their host countries or back home in the Philippines. Using very personal interviews, I was able to uncover three key (and very preliminary) findings that characterize the financial strategies of migrant workers:

I find that migrants, usually coming from low-income households, consider being indebted as a double-edged sword. On the one hand, debt provides the discipline they need in order to achieve their goals, on the other hand, debt is akin to being “jailed” and a new life can only truly begin when they are debt free. This precipitating situation of indebtedness makes them engage in unique financial behaviors. To repay debt, they will sacrifice daily needs and set aside constant payments, even if there are no technical limits to debt repayments as these are typically from family or extended kin. They also join savings groups. The purpose for participation in savings groups changes over time from a debt repayment purpose towards complementary income or social interaction purposes. However, there are hurdles to achieving financial stability despite these strategies, namely: behavioral aspects and unexpected circumstances. I find some early evidence that these hurdles can be counteracted by financial literacy training. I also find that financial stability has other effects apart from simply providing higher income. These are increased confidence for the migrant in their host countries and a general feeling of happiness rather than displacement. Even if the migrant begins with a goal to go home, remaining in the host country for a longer period becomes more and more agreeable. Financial stability is thus key in societal integration. In the succeeding weeks, we will discuss these findings in turn.

*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.