 Some Filipinos choose to work outside the Philippines with the hope that earning money abroad will solve their financial problems. According to the Philippine Statistics Authority, during the period April to September 2015, out of 10 million Filipinos abroad, there were 2.4 million OFWs. The top destinations for work are Saudi Arabia, the United Arab Emirates, Hong Kong, Kuwait, Singapore, and Qatar. Meanwhile, laborers and unskilled workers comprise the biggest OFW group, followed by service and shop and market sales workers, plant and machine operators, and trades and related workers. The total remittances sent home by OFWs was estimated at $180.3 billion pesos. This includes cash sent home, cash brought home, and remittances in kind. Various academic and policy papers reveal that labor migration and remittances resulting from it are salient national development issues. A recent study points out that the amounts of remittances have increased sharply, even faster than the departure of migrant workers. Moreover, remittances provide support to a developing country's shaky balance of payments and fiscal positions. Remittances appear to contribute importantly to lifting households out of poverty and benefit the wider community through multiplier effects of decreased spending on consumption or investment. Welcome to the Financial Sense, empowering you to make informed choices and take action to improve your financial well-being. I am Alfredo Pasqual. And I'm Elena Perna. Financial Sense talks about how making sense of money is important for the individual and the country. And I'm Jose Leto Florendo. Today on the show, we will discuss why some OFWs still struggle financially despite working abroad. Our guest for today is Dr. Stella Kimbo, a commissioner from the Philippine Competition Commission who has previously served as professor and the department chair of the University of the Philippines School of Economics. Hello and welcome, Dr. Kimbo. Hello, good afternoon. Our biggest question for today is what do OFWs and their families need to understand financially in relation to working abroad? We can attempt to answer this by looking at different factors related to finance that OFWs experience. But first, what motivates an OFW to leave the country and work abroad? How do they weigh the pros and cons of leaving the country to work elsewhere? There are what we call push and pull factors for migration. So push factors are those conditions locally that perhaps people don't like so much, which would push them abroad. Pull factors are those on the other hand are those things that would be in the destination countries which are attractive to people, which would motivate people to leave the Philippines. I was looking at the statistics and to see that perhaps income is still the greatest pull factor. It would still be the greatest motivator for Filipinos to work abroad. Looking at the family income and expenditure survey, there's a substantial difference in income for households with and without OFWs. So low incomes in the Philippines would push you. And lack of jobs, for example, would push you to go abroad. So the difference is quite big. It's something like 60-80%. So it's a big pull factor. What about having a relative abroad? Possibly because that would greatly reduce your transaction costs. If you travel to a different country for the first time, having a relative out there is really very comforting. It reduces a lot of uncertainties. The information would be provided to you. Of course, shelter could be given to you for free at least temporarily. The relative who got you the job abroad? Yes, also. What do OFWs have to spend before deployment and during their stay in the country where they were? So, well, of course, there would be a placement fee, which is, I think, something like 13,500. And then the POEA also allows agencies to charge one-month salary. So that's the basic cost. But of course, you need to pay for your ticket. The total cost would, of course, vary across destinations. So, for example, I saw a study that would show that for those working in Taiwan, they would shell out something like 85,000 to 150,000 initially, which is certainly a big amount. Many OFWs I would think and I observed would go abroad to be able to earn so that they can sustain their families that they would leave behind in the country. And a major dilemma or issue they have to face is how they balance the amount of money they'll spend while they are abroad as OFWs for their living expenses and how much they will remit to their family. How do you view this dilemma? Do you have any information that tells us how OFWs approach this question? So again, looking at the family income and expenditure survey, the average amount of remittances is something like 14,000 pesos. So that accounts for the difference between the households within and without OFWs. So, obviously, when an OFW goes abroad, there is an expectation that money will be sent back. So, of course, when you get there, when you go abroad, then maybe for some workers, they would realize that it's not enough. What they're making is probably not enough. So there's an expectation to send back, but then there are living expenses to deal with. And so, there are anecdotes indicating that many OFWs go into debt. So that's, I guess, one of the issues that we need to deal with. So, is there in debt? They don't have any savings. So that's perhaps the likely situation on the OFWs abroad will have very great difficulty saving. But then, if you look at the statistics as well, the households back home, they actually save more. So they're able to save more out of the remittances. In addition, they're actually able to spend more on education. They spend more on health. They spend more on things like furnishing. So in short, there are like some investments that they make out of remittances. But then, the statistics would also show that the households with OFWs spend more on recreation. So it's a mix of things, right? So whatever remittances they receive, a chunk of it is for human capital investments. But then they also, I think, have a better quality of life in terms of increased recreation. Is that true for all income groups? The increase in savings, yes. There's a higher savings rate for households with OFWs across all income groups. Across all occupational categories as well? I didn't check. But then I would do it. But generally... Would you say that the white-collar OFW families would have greater savings than blue-collar? I would think so. I mean, yes, why? Well, because of course, you're lower income desiles. That would be more or less your unskilled workers. Whereas your maybe ninth or tenth income desiles, that would be your professionals and technical workers. And across all of these income groups, you see a higher savings rate. My observation is that those going to take up blue-collar type jobs would normally be provided for their living expenses already or their living requirements, living shelter and food and other living expenses. So, there's not much of pressure in terms of keeping part of their earnings with them. So, the bulk of their earnings, I would think, get remitted to their families. Yes. That's why your statistic showed that 80% of the earnings are remitted. Is that what the data show? I haven't encountered data that would indicate a breakdown. But then, I would think that it's on the high side. Maybe on that range. I mean, on that range, maybe. But then, we also have to remember that to be able to cover for your travel costs, replacement fees and all that, even before leaving, they are likely to take out a loan. So meaning, the first thing that you need to do when you go abroad is pay off your debts, which the statistics would also bear out. Households with OFWs have greater expenses on loan payments than those without OFWs. So, if investments are being made on human capital by sending kids to school, and by observation, I note that they also invest in infrastructure, like homes. So, we could see an improvement in the living standards of the family left behind and also a better prospect for the family because they will now be producing well-trained, well-educated children. So there is that positive effect. But then again, there's also that slackening effect on the families left behind. With remittances coming on a regular basis, they do show that some families, well, they slacken in terms of looking for jobs, doing their studies and putting the remittances to good use. That's right. There is a social angle to this, which might have to be discussed at some future sessions. But just on the financial aspect, if there is enough coordination between, let's say, the spouse that's abroad and the spouse that's left behind, then the money can be managed in such a way that the earnings are able to prepare the family for a good future. But that's an ideal situation. It doesn't always happen that way. Which points out that there must be financial literacy on both parts, on the part of the OFW abroad and the OFW family that is left behind. What do they need to know about savings? About where to put the money in? Well, I can suggest five things. First, I think the OFW and their family members should first know themselves where they are right now. So they should know the monthly income and monthly expenses. They should know who they owe money to, but also their receivables from other people. So know yourself so that you can live within your means. I think the second one is for the households of OFWs to come up with a financial plan. They should have a target on what they want to be in in one year, two years, and five years from now. Third, I think they should take into heart the concept of saving, of setting aside a portion of their income monthly. You can start with, let's say, five percent of your monthly income and move upwards from that year-on-year. Next is, I think they should have an idea of investing, the concepts of investing, that they should not limit their savings to an ordinary savings account or a time deposit. They should take a look at other investment instruments as well. And finally, when you invest, I think one should not be grieved as well. We have heard several instances of people being pulling victims to scams. And I forgot one thing. It's very important. It's all about differentiating needs versus wants. You should know what you actually need versus what can be postponed in the meantime. So, those are my simple suggestions to OFWs which they can share and discuss with their family members in the Philippines. In fact, if you said, being rich is not earning more, it's spending less. And then we talk of spending. We have to distinguish between spending that's consumed for items that are consumed. So, after the expenditure, the money is gone and spending for the future through investment in education, investment in a home, and investment that will continue to yield assets or earnings that will support the family going forward. We must remember that, and I think we have to remind the family step behind by OFWs that their father or mother earning money abroad will not be there permanently or for a very long, long time. These are temporary works that will last after a certain period of time. So, they have to, as Professor Florendo said, have that portion of the earnings invested and not fully spent on consumption so that they can have a future that will continue to provide them support either to their own earnings because they have studied well or from the returns on investments. And if I may add to your tips, it would also be good for the OFW to understand the necessary spending that they would have to incur when they get there. For example, taxes. Of course, they're exempt from taxes locally in the Philippines, but they're not exempt from taxes abroad where they are. So, they need to understand how much those tax payments are. Secondly, they will obviously remit. They need to find the best way, fastest and cheapest way to remit their money. Although most, I think about 62% still rely on banks, but there could be other agencies, for example, that might offer a better deal. Third, some don't remit cash, but they might want to send in kind. So, there's a recent law that now exempts bike buy and boxes worth $150,000 and below from taxes. Parcells, $10,000 and below are also exempt from taxes. So, those little things might actually help you in your savings. I see here some statistics that you have about the savings rates of OFWs. And having it mentioned a while ago that savings of 5% would be ideal, what is the actual savings rate of OFWs? Okay, so for all... Okay, these are expenditure shares, all right? So, savings, how much would savings be in relation to your total expenditures? Okay, for all income groups, for those with OFWs, households with OFWs, it's 17% compared to 8% for those households without OFWs. For the lowest 40% of households, so that's the poorest for income desiles, it's 4.2% for households with OFWs and a negative 0.2, so they're slightly dissaving for households without OFWs. For richer income groups like the upper 20%, their savings share in total expenditure is 24.6% versus 22% for those without OFWs. I'm glad for those statistics, but I'm also worried that it will encourage more Filipinos to, well, not just to spend, but also to desire to work abroad. Well, currently the push factors, but then maybe the push factors right now might be so big, meaning the lack of jobs, unless that is addressed, we cannot tie them down. It's also important to keep in mind that it makes a difference what type of jobs are taken by our compatriots when they go abroad because there are certain jobs that they deliver their labor, like domestics, but they don't learn much, you know, anything new that they can bring back to the country. Maybe when they come back, they become better caretakers. Well, there's so many good caretakers in the Philippines already, but, you know, if we are to send our 5Ws and they take on technical jobs or highly skilled assignments abroad, then there is also the knowledge and skills that they are able to bring back, you know, aside from being able to remit their earnings to their family share. They also, when they come back, bring back those skills and knowledge, you know. It might also be good to find out what the savings rate would be for the OFWs themselves because these are household respondents. So these are the households that got left behind by the OFWs. We don't know what's happening to the OFWs themselves. They could be in great debt, right? But then, so that also needs to be monitored. So that's an area of study. That's no study yet. That will tell us what are the savings made by these OFWs themselves. Yeah, we could just speculate, you know. Because we hear a lot of stories of OFWs coming back, expecting that they'll be coming back to a family that's already established with a good home, you know, with children well-educated but sometimes it's a... Because they've sent all their earnings here. So one way to look at it is that the OFW, well, it's probably not increased income. That is the biggest gain, but rather increased liquidity. So when they get there, there's actually access to more loans. Their employment now becomes collateral for loans. They're actually able to send cash to their family so that locally the households actually become more liquid and they're actually able to save more out of it. On that note, are there any loans related to migrating abroad? If so, what are they? I have no idea. Yeah, normally, you know, my personal experience, you know, I've been approached by people or people who work for me, like drivers and maids, you know, their relatives going abroad and then they have to borrow money so that their relative can pay the placement fee. Okay, and I've heard of figures like 20,000 at least, you know, to be paid for one person to go abroad. So right there, at the start, the OFW is already indebted that has to be paid for first. And hopefully it's paid for first, but it's an obligation that has to be taken care of. And the statistics also show that households with OFWs actually give out more loans. So meaning it also to extended family, to extended family, perhaps neighbors, maybe it could be that some have become real charts. Yeah, I mean, having an OFW in your family might be a signal to the neighbors that, oh, they're probably, you know, they're more liquid or probably a source of cash. Well, from anecdotal evidence, I would say that when you go to a community which is normally an impoverished community and there is one house or a couple of houses that are well-built, beautiful. Normally they'll say, you know, that's the family of an OFW. That's common, you know? Common observation. Yeah, in fact, in some communities where you have a white painted house with a blue roof is, yes. Well, you know, in some communities in Bohol, they are the seafarers, you know? And the white painted house with a blue roof will be in a few years more than one in that community because there are more than one. You know, seafarer in that community. I guess that's the pull factor. Knowing a person who gets you a job in the same profession where you are abroad. But moving on, what do these OFW families need to understand about the care of the properties that they have? Well, I think when he challenges making sure that they're able to legally own, you know, the property. They have to be advised as well, you know, that acquiring a real estate property is not just occupying it. You need to have the title to the land. And that's very important, you know, and that they're able to pay the real estate taxes because after, I don't know, five years, you know, and you're not up to date with your taxes, the government will auction off your property. Whose responsibility should it be to educate the OFW families left behind, you know, on these financial matters? Well, I understand that we give financial literacy seminars to those who are living abroad. I don't know whether it's done universally or everybody goes through it. I think that should be done also, this kind of financial literacy seminars should be given also to those who are left behind. By POEA? POEA, ya? Can sponsor that because you know, the OFWs are there for the family's share. And the last law that was passed in the last Congress, the 16th Congress was actually a law declaring the second week of November as the economics and financial literacy week. So for the first time, we have a whole week of financial literacy activities and the lead agency is NEDA. And then the partner would be BSP because BSP is actually Working on Financial Literacy. NEDA is Technical Knowledge. Yes, and its private partner is the Philippine Economic Society. So that's a good venue actually for literacy activities. I suppose also that the Philippine embassies abroad should do the same for the OFWs who are deployed there. Particularly when it comes to protecting assets and other properties of the OFW. You know, one financial aspect of these remittances from OFWs is the fact that through these remittances the country itself as a whole gains by way of the foreign exchange that's generated. You know, remember these remittances are exchanged for pesos. It's pesos that's spent here but the whole economy gains the foreign exchange and that's able to sustain our importation of all types of goods including capital goods and consumption goods. Otherwise, you know, we need the export to earn that much. Beauty with this kind of earnings is that for the country that these remittances don't need to be repaid during the foreign exchange. Don't need to get repaid. There are such economic values also at the macro level. Internationally, the Philippines rates third as a remittance recipient country after India and China. And remember, India and China are ten times bigger. Yes, exactly. And the Philippines. Yeah, and our gains from remittances are 10% on GDP. So it's really, you know, that's why they are really called yeah, the heroes of the country the OSW as the Bayani. And if you hear all of these anecdotes, they're also the Bayani of their own families because it's really a big personal sacrifice to actually leave your family behind. In fact, maybe that's probably one of the push factors. If you're unmarried, there's a greater likelihood for you to actually go and work as a... Yeah, if you have children to feed. Well, married and married, or if you're unmarried and you have siblings and parents to take care of, there's also a push factor. Well, I think the types of jobs that are being taken by all of the values is changing. To those where families, whole families can go abroad with the main breadwinner. Okay, like technical experts when they are recruited, it's not on a single status anymore. They can bring their family. I think that kind of overseas work might be definitely better than one where the individual goes on a single status. And the proportion of this high what you call white collar types job is increasing, I think, as we produce more educated graduates. But of course, we want to keep these experts as well in the country. So there's a big dilemma for us in the country. The brain and the brain. But I would not... I would look at this more of brain circulation rather than brain-brain. We send them there, they imbibe new knowledge and develop new skills and then they come back and help the development. We've seen that, you know, in countries around us that have developed with the return of their compatriots abroad, from abroad. I wonder though whether in some occupations there is an intergenerational continuation of OFW aspirations. Yes, CFARERs. Where a father, CFARER, will tell a son to take up marine engineering so that eventually... But upgrading. Well, we don't talk about upgrading. Yes, but it becomes like the main industry of the family. CFARERing as a main OFW job. The statistics would show that there seems to be that kind of possible intergenerational effect. There's an average of 1.13 OFWs in households with OFWs. So in short, there are some households with two. So we don't know if those are whether married, they could be the husband and wife or it could be a parent and an offspring. Or mother and daughter. Yeah. But I guess it depends on whether the experience is actually positive for the parent in which case the children might follow their footsteps. Just going back to the savings statistics. Yes, 17% is high compared to the overall savings rate of the country. But 17, or even 24%, I mean, these are numbers that are lower than 30% or more percent savings rate of other developing countries that have or are developing faster than the Philippines. So we still have to really exert more effort to promote savings in the countries. I guess if there are 10 million OFWs abroad, there would be 10 million OFW families here. And if each family saves at a rate of 4%, then our banks must be in good business. Banking or banks because they've now done or handled most of the revetas? No, from the savings. Not from income from now, but on on savings. Yeah. I think there are statistics from the BSP that would indicate that I think 80% of those actually have accounts whereas in general only 2 out of 10 Filipinos have an account. So for those with OFWs, they're pretty good. But this wouldn't be the rural banks. This would be the large the larger banks. Well, it depends on accessibility of the bank to the family of the OFWs. So I would think that if they come from all the areas of the country, then the banks in those areas should be Yeah, everybody I think all the banks get into the fray and they all benefit. Yeah. Okay, thank you very much for being with us Dr. Kimbo. It was a pleasant discussion. Some statistics that you shared with us are actually new to us. So thank you very much for being here and sharing us this information. Do you have any final words to share with us and with audience? Yeah, I think from a household's perspective there are clearly economic gains from having an OFW in the family. But then of course that's very micro and very present oriented. Of course from a macro perspective you would of course want a better situation for the entire country. You know, you would want to aspire for a situation where there are enough jobs locally so that parents won't have to leave their kids behind. So that's why and it has always been repeated that we need to actually create jobs locally. But then perhaps just thinking about the statistics one possible policy handle as well would be improving access to credit locally because if in fact lower income households have access to loans that they can actually use to send their kids to school then perhaps that might be a better option for some. So we should look at all other alternatives. Without a doubt OFWs have contributed much to their families, their communities and to the country as a whole. In fact, government has facilitated their deployment over the years acting as some sort of employment agency. However, for greater inclusive growth this policy of deployment should be rethought so that families get to stay together and spend their savings together. During the course of our discussion the importance and contribution of OFWs has been emphasized. Therefore, I think financial education is very important before the OFW leaves the country. This should be a shared responsibility between the OFW and the members of his or her household. Once again, I would like to emphasize that the OFW and his relatives should first know themselves, know their current status. Second, they should come up with a financial plan to determine where they want their financial status to be within one, two or five years from now. Third, they should be able to differentiate needs versus wants. Inakailangan malaman ang pagkakaiban ng gluho at pangangailangan. It is also important that the OFW and the members of his household make saving a daily part of their lives. And they should also be aware of other investment product like beyond a time deposit and savings accounts. And as they invest and save my last advice is that they don't be greedy and that they take care of being victims or falling prey to scabs. Thank you. OFWs are driven to jobs abroad by dreams, dreams of a better life now and in the future. The realization of these dreams depends heavily on their being able to manage their finances well. So I hope that the discussions we had today will somehow give ideas that will help our OFWs and their families handle the current earnings so that they can enjoy this now and in the future. These OFWs are called modern-day heroes as their remittances have largely contributed to the growth of the Philippine economy over the years. However, why do some OFWs still struggle financially despite working abroad?