How the rising cost of living is impacting remittance flows from Canada

Joachim Adeponle

Nov 3, 2023 • 7 min read

Canada has now become one of the leading destinations of the world with businesses and human resources pouring into the country day in, day out. With the impact of interconnectivity and globalisation, these businesses and individuals get to remit monies to various parts of the world for business or personal use.
In recent times, Canada has seen a significant rise in the cost of living due to factors including inflation; and the rising cost of housing in Canada due to factors such as low supply, high demand, and low interest rates.
Other causes include the rising food costs caused by supply chain disruptions, increased demand, and bad weather conditions; rising energy costs, also due to increased demand, supply chain disruptions, and the war in Ukraine.
All these factors come together to not just affect living conditions but remittance flows from Canada.
In this article, we shall be taking pains to find out How the rising cost of living is impacting remittance flows from Canada and see if there are any ways to make things better; but first, let us check out the essentials.

What are remittances?

Remittances are transfers of money and goods from migrant workers to their home countries. They are an important source of income for many developing countries and can have a significant impact on both the sender and recipient households.

Importance of remittances to senders

There are a number of reasons why senders choose to remit money to their home countries. Some of the most common reasons include:

To support family members, such as parents, children, and siblings.
To invest in education, healthcare, and other essential needs.
To save for the future.
To support community development projects.
Importance of remittances to recipients

What roles do remittances play in the lives of recipients?

Remittances can play a vital role in the lives of recipients. They can help to:

Reduce poverty and improve living standards.
Increase access to education and healthcare.
Reduce the risk of food insecurity.
Empower women and girls.
Promote economic growth and development.
Recent trends in international remittances from Canada

International remittances from Canada have been growing steadily in recent years. In 2022, Canadians sent over $34 billion in remittances to over 200 countries around the world. The top destinations for remittances from Canada are India, China, the Philippines, Mexico, and the United States.

What are the factors driving the growth of remittances from Canada?

There are a number of factors driving the growth of remittances from Canada, including:

The growing number of Canadian immigrants and temporary residents.
The ageing population in many developing countries is leading to an increase in the demand for remittances from children and grandchildren living abroad.
The increasing use of digital technology to send remittances has made it easier and cheaper to send money to other countries.

How is the rising cost of living impacting remittance flows from Canada?

The rising cost of living is impacting remittance flows from Canada in a number of ways.

Impact of the rising cost of living on senders

The rising cost of living in Canada is making it more difficult for Canadians to afford to send remittances. As the cost of goods and services increases, senders have less money to spare to send to their loved ones back home. This can have a number of negative consequences for both senders and recipients.
Some of the ways that senders are cutting back on remittances or changing their remittance patterns include:

Sending less money each time they remit.
Remitting less frequently.
Choosing to remit through cheaper remittance services, even if they are slower.
Delaying remittances until they have more money to spare.
Asking recipients to cover some of the remittance fees.

The potential negative consequences of the rising cost of living on remittance flows include:

Reduced financial support for recipients: Remittances are often used by recipients to cover essential expenses such as food, housing, education, and healthcare. A reduction in remittances can make it difficult for recipients to meet these needs and can lead to poverty and hardship.
Increased stress and financial hardship for senders: Senders may feel guilty about not being able to send as much money as they used to. They may also have to make difficult choices about how to allocate their limited resources. This can lead to stress and financial hardship for senders and their families.
Negative impact on the economies of remittance-receiving countries: Remittances are a significant source of income for many developing countries. A reduction in remittances can have a negative impact on these economies, leading to job losses, reduced economic growth, and increased poverty.

Impact of the rising cost of living on recipients

The rising cost of living in Canada is reducing the purchasing power of remittances in a number of ways. First, as the cost of goods and services in Canada increases, the value of the Canadian dollar decreases. This means that recipients in other countries are getting less money for their remittances, even if the amount of money sent remains the same.
Second, the rising cost of living in Canada is making it more difficult for senders to afford to send remittances in the first place. As senders have less money to spare, they may have to send less money or remit less frequently. This can lead to a reduction in the purchasing power of remittances, even if the exchange rate remains the same.
Here are some examples of how recipients are struggling to make ends meet, even with remittances:

A family in the Philippines receives a remittance of $100 CAD each month from their son who works in Canada. However, the price of rice has doubled in the past year, meaning that the family can now only buy half as much rice with their remittance.
A student in India receives a remittance of $200 CAD each month from his parents who work in Canada. However, the cost of tuition has increased by 20% in the past year, meaning that the student now has to take out a loan to cover the cost of his education.
A retiree in Mexico receives a remittance of $300 CAD each month from his son who works in Canada. However, the cost of medicine has increased by 15% in the past year, meaning that the retiree now has to spend less money on other essential expenses, such as food and transportation.

Potential negative consequences of this trend for both recipients and their families
The potential negative consequences of the rising cost of living in Canada on the purchasing power of remittances include:

Increased poverty and hardship for recipients: If remittances are not able to cover essential expenses, recipients may be forced to go into debt, sell assets, or reduce their consumption of essential goods and services. This can lead to poverty and hardship for recipients and their families.
Reduced educational and healthcare opportunities for recipients: If recipients are unable to afford to pay for education or healthcare, their life chances may be reduced. This can have a negative impact on their future and the future of their families.
Increased stress and anxiety for recipients: The rising cost of living and the declining purchasing power of remittances can cause stress and anxiety for recipients. They may worry about how they will meet their basic needs and provide for their families.
Reduced economic growth and development in remittance-receiving countries: Remittances are a significant source of income for many developing countries. If the purchasing power of remittances declines, this can have a negative impact on economic growth and development in these countries.

Other impacts

Here are some other ways in which the rising cost of living is impacting remittance flows from Canada:
Increased fees for remittance services: Remittance service providers are businesses, and like all businesses, they need to make a profit. As the cost of living increases, remittance service providers may be forced to raise their fees in order to cover their costs. This can make it more expensive for Canadians to send remittances to their loved ones back home.
Reduced access to remittance services in some areas: The rising cost of living is making it more difficult for remittance service providers to operate in some areas. For example, remittance service providers may be forced to close branches in rural areas where the population is declining and the cost of doing business is high. This can reduce access to remittance services for people living in these areas.
Increased risk of remittance fraud: The rising cost of living is also making people more vulnerable to remittance fraud. Remittance fraudsters often target people who are desperate to send money to their loved ones back home. They may promise to send money at a lower exchange rate or without any fees, but they never actually send the money. The rising cost of living is making people more likely to fall for these scams, as they are more desperate to send money home and less able to afford to lose money.

Policy recommendations that could help solve this issue

There are a number of policy measures that could be implemented to help mitigate the negative impacts of the rising cost of living on remittance flows. These include:

Reducing remittance fees: Governments and remittance service providers could work together to reduce the fees associated with sending remittances. This would make it more affordable for Canadians to send money to their loved ones back home.
Providing financial assistance to senders: Governments could provide financial assistance to low-income Canadians who are struggling to afford to send remittances. This could be done through tax breaks, rebates, or other programs.
Promoting the use of digital remittances: Digital remittances are often cheaper and faster than traditional money transfer methods. Governments and remittance service providers could work together to promote the use of digital remittances among Canadians.
Investing in remittance-receiving countries: Governments and development organizations could invest in remittance-receiving countries to help them develop their economies and reduce their reliance on remittances. This could help to make these countries more attractive to migrants and encourage them to stay and contribute to their home economies.

In how

From what we have seen so far, we can understand how the rising cost of living in Canada is having a significant impact on remittance flows, both in terms of the amount of money being sent and the purchasing power of remittances. Senders are cutting back on remittances or changing their remittance patterns, while recipients are struggling to make ends meet even with remittances.
This trend has a number of negative consequences for both senders and recipients, including increased poverty and hardship, reduced educational and healthcare opportunities, and increased stress and anxiety.
There are a number of ways to mitigate the negative impacts of the rising cost of living on remittance flows. Governments and remittance service providers can work together to reduce remittance fees, increase transparency and regulation in the remittance industry, and promote financial literacy among recipients.
Additionally, governments can provide financial assistance to low-income Canadians who are struggling to afford to send remittances and promote the use of digital remittances, which are often cheaper and faster than traditional money transfer methods.
We hope all stakeholders involved will take note of these issues and their possible solutions and make the best of it.