The Remittance Cause & Effect

This is not a political post. It’s an economic cause and effect study.

This is not a recommendation, but context for why ILF, iShares Latin America ETF, has been part of some client portfolios since August 2025, depending on individual goals, risk tolerance, and time horizon.

When I was getting my second major in college, economics, I took what ended up being my favorite course, Latin America Economics. We covered a lot of concepts, but one economic idea stuck with me more than any other: remittances.

So, what is a remittance? And why did it stick with me all these years later?

A remittance is when someone who is from a foreign country sends money back home to their families who are still living there.

Why did I think and remember this from over 15yrs ago?

Well, one of my favorite quiet moments of the day is after I drop the kids off at school and drive back alone. That’s usually when I listen to financial podcasts. Two of my favorites are Freakonomics Radio and Planet Money.

In late October I listened to a Planet Money Podcast called “The Remittance Mystery”. In this fascinating podcast they discussed how the United States has long been the largest source of global remittances. Yet, at a moment when immigration enforcement has ramped up and fewer migrants are arriving, some Central American countries, like Honduras, Guatemala, and El Salvador are seeing unprecedented increases in remittances.

So… why is this happening?

1. Fear, Not Prosperity Is Behind the Trend

One of the most compelling explanations the podcast uncovered is fear. Specifically, fear of deportation. 

As enforcement actions have intensified, many immigrants, especially those without stable legal status, are sending as much money home as they can, as quickly as they can, out of concern that they might soon be forced to leave the U.S.

Recent data and reporting suggest remittances have surged by more than 20–25% year-over-year in some countries, even as new immigration slows.

One immigrant quoted in the episode said that he’s now afraid to even go to the airport for fear of being stopped. For people like him, sending money back becomes a form of insurance, a way to secure a future for them and loved ones in their home country just in case they’re uprooted here.

2. It’s Not Just About Fear, It’s About Timing

Interestingly, this surge isn’t explained by a booming job market or easier ways to send money, although technology has certainly made remittances cheaper and faster.

Apps like Remitly let users send funds from a phone rather than standing in line at a money-transfer shop. But that evolution has been years in the making and doesn’t explain a sudden spike this year.

There has also been discussion from the Trump administration on a proposed remittance tax, which could incentivize people to send money sooner rather than later.  Still, based on the reporting, fear appears to be the dominant driver.

3. Some Countries Are Winners, Others Aren’t

Here’s an interesting twist: not all remittance corridors are growing.

Mexico, despite historically receiving the most remittances from the U.S., isn’t seeing the same surge. That’s likely because Mexican immigrants in the U.S. tend to have longer histories here and more stable legal status, meaning they aren’t racing to send money home in the same way.

In contrast, many migrants from Central America have less stable status and more immediate worries so they’re more likely to send large amounts before anything changes.

Honduras for example, a country where tourism makes up roughly 10.7% of GDP (and yes, we’re actually visiting next month on a cruise; the snorkeling and scuba diving are incredible), has seen remittances grow to roughly 5% of GDP.

That is a massive number in terms of GDP!

Why It Matters Economically and for Clients

On the surface, increased money flowing into developing economies sounds like a win.

Local businesses see higher spending, families can afford necessities and even discretionary items they couldn’t’ before. Banks report higher deposits and lend to new businesses. The U.S. dollar weakens, giving Latin American countries stronger purchasing power, thus lifting foreign equities like we saw last year.

But this is also a reminder of how macroeconomic shifts ripple down into personal financial decisions and investment outcomes. Capital flows tell stories long before headlines do.

Final Takeaway: Money Always Tells a Story

If there’s one thing that stood out from “The Remittance Mystery,” it’s that money isn’t just a number, it’s a narrative.

These dollars crossing borders tell us about family ties, economic insecurity, policy pressures, and human resilience.

As advisors, investors, and thoughtful citizens, understanding these flows helps us not just read the headlines, it helps us understand the cause and effect underneath them and how they truly effect real people and their situations.

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• Family train ride with Ace

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual or firm.