Timing is everything. But in which direction?

Author: 
Rebecca Rouse, Remittances and Savings Program Coordinator

Most practitioners agree that the income volatility experienced by many low-income households is a barrier to poverty alleviation, affecting everything from food security to asset building. In Latin America and the Caribbean, two common forms of resource transfers help to alleviate the problem of income volatility for poor families: government cash transfers and migrant remittances. Cash transfers are regular and predictable. Surveys suggest that remittance transfers are also predictable— in a 2013 MIF survey of Latin American migrants in the United States, respondents reported sending an average of $212 per transfer, making an average of 13 transfers per year. However, the average doesn’t tell you everything about this picture. Emerging qualitative research suggests that at a household level,  remittance transfers may actually be more volatile and lumpy than is reflected in the means derived from large-scale surveys. 

What if we want to make remittance flows more regular and predictable?  There could be a market-based solution to that, if savings products could react to remittance volatility and control the timing and the volume of remittance transfers for you. One U.S.-based startup called Even is currently beta-testing a mobile app with the ability to turn irregular income into regular paychecks, backed by a savings account.  The product calculates your average income based on a few months of data, and then transfers you the same amount of money each month, regardless of your actual income. During months where you earn more, the surplus is transferred automatically to a savings account on your behalf. On months when you earn less, Even makes up the difference by adding to your income from your savings. In the case that you don’t have enough savings available, Even will give you a loan for the difference which is paid back the next time you register a surplus. This is a concept that could be very easily applied to remittance transfers, either by the financial institutions which pay them out or by money transfer companies themselves.

However, a recent paper by Jessica Hagen-Zanker and Carmen Leon Himmelstine, How Effective are Cash Transfers in Reducing Poverty, Compared to Remittances?, suggests that predictable transfers may not have the most impact. Hagen-Zanker and Leon Himmelstine find that, overall, remittances seem to have a stronger impact on reducing poverty, which may be related to the timing of the transfers. Rather than being regular and predictable, the authors found that remittances made an impact because they were responsive to shocks.

Without additional research on the timing of remittance transfers and how it plays into households’ financial lives, we may not yet know enough to be able to make recommendations on the types of tools that households need to manage remittance flows. Upcoming research from the Remittances and Savings Program hopes to fill some of this gap… stay tuned!  

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