‘46% of PH remittances spent on debt payments’

Aya Lowe
This highlights the need for financial education for overseas Filipino workers and their families

OFW MONEY. The Philippines is the third-biggest recipient of dollar remittances in the world. Photo from AFP

MANILA, Philippines – Nearly half or 46% of remittances coming into the Philippines are being spent by families who receive them on debt payments, according to a government official.

Remittance money that is used for investments makes up the lowest percentage of 6.8%, while 44% of remittance money goes to expenses, including basic needs, and savings.

These figures highlight the need for financial education for both overseas Filipino workers (OFWs) and their families in the Philippines, said Imelda Nicolas, chairperson of the Commission on Filipino Overseas (CFO) under the Office of the President, during the Citi-FT Financial Education Summit 2012 in Manila last December 5 and 6. 


OFW remittances continue to be the largest source of development finance in the country. According to a recent report issued by the World Bank, the Philippines is the third-biggest recipient of remittances in the world at a projected value of $24 billion for 2012.

“Although migrant workers are, to a large extent, adversely affected by the slow growth in the global economy, remittance volumes have remained remarkably resilient, providing a vital lifeline to not only poor families but a steady and reliable source of foreign currency in many poor remittances recipient countries,” World Bank Development Prospects Group Director Hans Timmer said.

As remittance inflows grow, so does the need for recipients to be better educated on how to spend and invest them well.

“We’re beginning to see remittances becoming a promising economic story in the Philippines. This rise of a middle class brings people into the financial net,” said David Pilling, Asia editor of Financial Times.

The importance of financial education for OFWs and their families has been recognized in the Philippines’ Development Plan, which states, “policy makers will need to focus on leveraging remittance as a tool for economic development. While remittances are private transfers, the government can ensure that the policy environment is conducive to the use of considered financial approach by improving the financial education of the overseas Filipino community and implementing measures to further promote the flow of remittances through the financial system that would help catalyze the development role of remittances.”

Financial literacy

According to Nicolas, when advocating financial literacy, both OFWs and their families should be targeted.

With the full support of the Bangko Sentral ng Pilipinas (BSP), the CFO also organized a multi-stakeholder Remittance for Development Council (ReDC). It is an advisory and policy recommending body and consultative forum for issues and concerns related to remittances for development.

The ReDC collaborates with other groups for collection of data and research on remittances. It advocates to help further reduce cost of remittances, cooperates with those who provide financial education, disseminates information on models and conduits to channel remittances for local development, recommends how to improve business environment to attract overseas Filipinos to invest, save and put up their own businesses here.

Money transfer firm Western Union has responded to the need for financial education by setting up the National Financial literacy Program 2013.

The Global Remittance Working Group, meanwhile, also set works toward increasing efficiency of the remittances market, and facilitating the flow of remittances by providing guidance and policy options to the global community.

The organization was successful in reducing the global average costs of transferring remittances to 10% from 40%. They are now looking to reduce it further to 5%.

According to Tony Lythgoe, head of Financial Infrastructure at the Access to Finance Advisory of the World Bank’s International Finance Corp., a reduction in costs would generate a net increase for migrants and their families in the developing world estimated at $15 billion.

Remittance costs to Malaysia, Philippines and Indonesia continue to be the lowest among East Asia-Pacific countries.

“We have seen a notable reduction in the cost of money flow. The trend is downwards but not as quick as most of us would like to see,” said Lythgoe.

Lack of financial education

Globally, an estimated 3.4 billion people have not gone through any process of financial education, said APEC Financial System Capacity Building coordinator, JC Parrenas.

In addition, 2.5 billion people, half of the world’s adult population do not use formal financial services to borrow money. Out of that number, 1.5 billion are here in the Asia-Pacific region, added Michael Zink, head of ASEAN and Citi Country of Citi, Singapore.

For the Philippines, one of the main hurdles is low income. According to a recent survey, only 25% of low-income earners who have accessed financial services have had any sort of financial education. The percentage is lower among those who have not tapped these services. 

Financial literacy, or awareness of basic financial concepts, has been one of the advocacies of the BSP.

“The BSP is intensifying its information campaign to ensure that intended benefits accrue to consumers. We are working on increased transparency to ensure that consumers are not charged high rates, etc,” said Governor Amando Tetangco Jr.

Currently, the BSP conducts a series of activities under its Economic and Financial Learning Program in order to improve financial education in the country.

According to Zink, the Philippine Development Plan has also identified financial education as one of the important thrusts of the administration.

“A little bit of money has tremendous impact with the people we’re trying to help. A little education also changes people’s behavior. We made a long-term commitment to financial inclusion to help build financial capabilities. Why? think about a banking license. It’s a privilege granted to us by our society, which we seek to serve. With that privilege comes great responsibility that we help our clients understand our products,” he said. – Rappler.com