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Salvadoran Consumer Protection and Remittance Transfers

Project Overview

Academic research to develop tools to allow El Salvador's state agencies to expand resources, outreach and services offered to migrant citizens living abroad and their families who remain in El Salvador.

Identifying the Problem

In Central America, upwards of 20% of a state's population may live abroad. There is a significant amount of money generated by the people who live and work in foreign countries in order to send money back to their families. In El Salvador, remittances account for about one-fifth of the national GDP. The vast majority (80%) of the families receiving these payments use non-bank financial services and communications companies for the international wire transfer of this money.

The transfers of remittances have traditionally been treated as one-way, with most financial education geared towards the migrant worker who is sending the money back home. But the Salvadoran families depend on receiving the remittances sent from their family members abroad, and the landscape for money transfers between the United States and El Salvador is difficult to navigate, and is costly and opaque for the vast majority of remittance consumers.

For example, many banks coordinate with non-bank wire transfer companies to offer cash-based transfers independent of long-term savings opportunities, but still fail to link remittances to interest-bearing accounts or investment opportunities. Furthermore, domestic institutions may neglect to inform the families of the migrant workers of their financial options when it comes to receiving, saving and/or investing remittances. Migrant workers are also affected, as they may be unaware of their options in receiving states regarding how to send, save and invest remittance transfers before they depart their home country to work abroad.

Creating A Solution

Joshua travelled to El Salvador to conduct on-the-ground research that would help him develop ways to improve financial literacy and consumer protection among Salvadoran families receiving remittances. He realized that it was not enough to focus on the hard numbers – he would have to understand how the Salvadorans receiving the money from their loved ones comprehended the system that governed the fees they paid and the institutions they used. Therefore, Joshua expanded his research to include tools from economic  and behavioral science research in order to develop a guide for financial and social service providers that would address the needs of migrant constituent groups. He also conducted interviews with various Salvadoran organizations.

Joshua found that it was important to make the information about remittance transfers more accessible and relevant to the individuals seeking to send and receive such payments. He analyzed the ways in which other similarly situated countries had transformed informational programs to make them much more effective. A key finding was that it was often cheaper to use wire transfers than banks, debunking the myth that consumer illiteracy is often to blame for limited use of bank account options. He combined these findings with certain elements from his research and developed financial education materials that were specifically geared towards educating Salvadorans about their financial options tied to remittances. 

Joshua met with the President of the Salvadoran Consumer Protection Agency and staff at the Salvadoran Central Bank to present his research findings:

  • While policymakers and financial institutions have traditionally treated remittance transfers as two-way, at the family and community level, they are often viewed as two-way.
  • Family members receiving transfers may demand access to more information on financial services options so that they may become more active in the “method of transfer” decision-making process. 
  • Salvadorans choosing to work abroad may benefit from receiving educational information about remittance transfers and savings options before they leave El Salvador.

Joshua discussed the ways in which existing programs can be made more relevant and successful through the inclusion of his educational materials, and he hopes that the Central Bank will use his materials at its workshops that teach Salvadorans about effective methods of banking.

Lessons Learned

Joshua stresses that before recommending solutions to economic problems, it is important to provide concrete, relevant research.  “Know your audience,” he says.  “Understand the importance of economic considerations in a time of post-recession recovery and a more financially interconnected world.”

Funding

In order to conduct this academic research, Joshua spent $700 on a round-trip ticket between the United States and El Salvador, $300 on living expenses for his month's stay in San Salvador (including rent, transportation and food) and $30 to print and present his research materials. Joshua used his personal savings to cover all of these expenses.

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About This Project

HIA Program:

Germany Germany 2011

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