Currency Conundrums
By Hannah Isom
Have you ever wondered why foreign currency always feels like Monopoly money? No matter how hard you try to do the maths, you still always end up paying £3.50 for a bottle of Evian, or coming home with wads of surplus notes. Well, new research published just in time for the summer hols seems to shed a little light onto our peculiar overseas spending habits.The problem is all down to “money illusion” – and no, that’s not the problem of thinking you have lots of money when you’re skint. It’s to do with a mistake in the way we perceive the value of unfamiliar currency. Too easily confused by the brightly coloured bills and the numbers they carry, we detach ourselves completely from what they are actually worth.
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They found that when using a currency with a lower face value than their own (e.g. a US consumer spending euros 1 dollar = 0.80 euros), consumers were more thrifty. But when spending money with a higher face value (e.g. 1 dollar = 120 yen), they splashed the foreign cash.
The authors explain that this shows consumers "evaluated transactions by estimating the nominal difference between their budget and the price of a given good or between prices of competing goods". Which, reading between the lines, means we take a wild stab in the dark and hope for the best.
More serious consequences of this spending behaviour became apparent in 2002, when Europe switched to the Euro, sending price perceptions completely off track. Maybe those bargain designer shades from the Costa Del Sol weren’t such a bargain after all.
Want some more? Then try Hannah's page or these links:
- Humour - Money grown on trees
- Opinion - What £2 can say about you
- News - Dodgy Account-Ants
- Thing of the Month - Tax
Image: James White
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