“When traveling abroad, can we compare the costs of goods and services in local currency versus the costs in another country’s currency? For example, is a spend of £100 seen by a Brit in a comparable way to a spend of $100 from the perspective of an American or Canadian? » — Jean-Guy Allaire
Indeed, when traveling abroad and looking at the cost of living in the countries visited, it can be complicated to evaluate the cost of goods and services in local currency compared to the average budget. citizens of the countries visited.
Likewise, it can be complicated to compare their situation with that which we experience as citizens and consumers in our original economy in Canadian dollars.
How to do it? Analysts consulted by The Press suggested two approaches.
On the one hand, we can assess the relative weight of a purchase of goods and services based on the disposable income (after tax, in local currency) among the inhabitants of the visited country.
On the other hand, we can compare the cost of goods and services between countries based on the exchange rate between their respective currencies.
For the first approach, we use data on “average household disposable income per capita” compiled among the member countries of the Organization for Economic Co-operation and Development (OECD).
This data for 2023 – the most recent available – is compiled in US dollars, which is the main reference currency in the global economy.
Then, we convert this “average disposable income” data into the currency of each country concerned, at their average exchange rate with the US dollar in 2023.
We then arrive at an average disposable income per capita in local currency on which we can measure the impact of purchasing goods and services in local currency.
The results of this statistical and monetary exercise can be found in the table below. In addition to Canada, this table includes figures for six countries that are among the most important destinations for Canadian travelers abroad.
For example, we see that for a Canadian citizen, a purchase of $1,000 represents approximately 2.16% of the amount of $46,141 in “average household disposable income per capita” in Canada, as compiled by the OECD.
In comparison, an expenditure of 1,000 euros made by a French person represents 3.15% of the average disposable income per capita in France, which stands at 31,777 euros, according to the OECD.
Across the Channel, in the United Kingdom, an expenditure of 1,000 pounds sterling represents a 3.77% share of the amount of 26,487 pounds in average disposable income per British citizen.
At the other extreme of this sample of the countries most visited by Canadians, we see that a expenditure of 1,000 yen by a Japanese represents only 0.02% of the average disposable income per capita in Japan, which is around of 4.19 million yen!
Rich in millions, the Japanese? Maybe in their national currency, but not at all considering the average exchange rate of 145 yen to the US dollar in 2023.
After conversion, the average disposable income per capita in Japan is thus found at US$28,872 in the data compiled by the OECD.
Also, in the sample of countries most visited by Canadians, this amount of average disposable income per capita in Japan is much higher than in Mexico and Brazil.
On the other hand, it remains lower than the average disposable income per capita in Canada, the United States, France and the United Kingdom.
Exchange rate
As for the second approach to comparing the cost of living, the analysts consulted by The Press suggest comparing the price of goods and services between countries based on the exchange rate between their respective currencies.
In fact, it involves comparing the “cost price” in an original currency – the Canadian dollar – of a disbursement of 100 units in the currency of another country, taking into account the exchange rate between the currencies concerned.
To do this, we created an international comparison table with data from banking institutions and information websites specializing in currencies.
In this table, we see that a purchase of US$100 will cost the equivalent of $135 for a traveler from Canada, but only 90 euros for a European traveler and around 75 pounds sterling for a British traveler.
In comparison, a purchase of 100 euros would cost the equivalent of $151 for a traveler from Canada, around $112 US for an American traveler and around 84 pounds for a visitor from the UK.
In the opinion of the analysts consulted, this cost comparison based on exchange rates can be particularly useful when planning and budgeting for a trip abroad.
If only to protect yourself from a financial shock upon returning from a trip, when you review your credit card statements in Canadian dollars.