4 years later? Raised by my grandmother in the countryside, “old francs” were still used by mostly everybody 15 years later. Weirdly, people (including myself, who was born after this change) tended to use old francs for larger amounts for longer. So, say in 1985, someone would tell you that his rent was 2000 francs, but his car was costing 4 millions francs. The larger the amount, the more likely people were to revert to old francs. My elderly mother still often converts euros into old francs for things like the price of a house, 50 years later.
Obviously, the cost of living is much lower. But also, people spend a lot less. If you’re building a shack illegally on some piece of land you don’t own, without water or power (or with water and power also illegally diverted to your place), you’re not paying anything to house yourself.
Also, production of subsistence farming isn’t included in GDP. I don’t know if it’s included in these income figures. If you produce yourself most of what you eat and sell the rest for 50 cents a day, I don’t know if a NGO will include you in the people making less than $1/day, for instance.
These figures are published in dollar over here to. It being the international currency, all these statistics are calculated in dollars. The local newspaper might convert them into euros, but quite often they don’t, or write something like : “x millions people live on 1 dollar (0.93 euro)/day or less”.
Recently, for some time, I spent only € 15/week on groceries (already done this kind of drastic expense cutting in the past). That’s about €2/day, and included things like soap or razor blades. And the food was quite diverse (including fish, organ meat, eggs, milk, some vegetables and fruits…I could even afford some “luxuries” like desserts). Obviously, living only on rice would be much cheaper. That’s in France.
People who never tried to live on a very small budget tend to overestimate how much money you really need. You can easily pick a bag of chips that will cost you more than several meals of basic stapples, so when you look up how much you spend while not buying anything extravagant, you’ve a tendancy to assume you couldn’t live on much less. Even in western countries, you can feed yourself on such a low amount.
One thing I’ve found helpful is to avoid words like “convert” or “change”–it leave the impression that you magically change one physical bill into another physical bill. Much better to say “buy” or “sell” and “cost”. So you say “it costs you a dollar to buy 2 euros, which means it costs 2 euros to buy a dollar”. (I usually also point out first that it works the same at McDonalds–it costs you a dollar to buy 2 apple pies, but it costs them 2 apple pies to buy a dollar).
What’s the difference? What is “buying” and “selling,” if not “magically” changing money into goods and services, or the reverse?
The difference is that if you can switch perspectives back and forth the process makes more sense and seems less arbitrary. I bought euros/he bought dollars. If you think of it as just a magical transformation, with the dollars you spent being destroyed, it’s really hard to grok currency fluctuations–a dollar used to buy me 2 euros, so two euros worth of stuff. Now it buys me three euros, and more stuff. It’s more valuable. He used to spend two euros to get a dollar’s worth of stuff. Now he spends three euros to buy the same dollar, to buy the same dollar’s worth of stuff. American stuff costs him more, his euro is less valuable.
It’s also crucial to understand this to get the foreign exchange market.
Yep, that’s the first thing I thought of when I read the OP.
To add a little TL;DR meat to the post, the Big Mac Index is something that “The Economist” magazine uses to compare purchasing power parity between most nations, using something that’s identical and comparable in those nations- the Big Mac sandwich as sold by McDonald’s.
So for example, this month, a Big Mac in the US costs $4.79. Apparently the US Dollar is extremely valuable at the moment, because only Switzerland and Norway have Big Macs that cost more than 110% of the US price. By comparison, a Big Mac in Mexico costs 49 pesos, which is roughly $3.11. So things are cheaper in Mexico, something like 35% less, as the exchange rate is $15.74 : 1 USD, and the price would imply an exchange rate of $10.23 : 1 USD.
To repeat what Manda JO has already said with different wording: students normally approach the acquisition/exchange of money as a magical process. Money is just something that “shows up” or “disappears” according to the hidden rules of the universe. It takes genuine effort for them to consider the actual market system that underlies exchange.
Take the example of video games. If you ever play a game, “money” is always a magical process. There are certain actions that you can take in the game that will increase the money number stored in memory (e.g. killing monsters) and there are other actions that will decrease the number (e.g. buying equipment and upgrades from virtual shops). But there’s no money market involved. Money is merely a pre-programmed – read: magical – algorithm that exists as a part of the obscure physics of that game universe. And players just go with that. They don’t question it, don’t dig into it. Some of the MMORPGs, like Eve Online, have fairly sophisticated economies and internal markets, but even those markets don’t extend to the money supply itself. Those online games still have sources and sinks for currency where money can suddenly appear out of nowhere or disappear entirely from the system. Game developers tweak the currency sources and sinks “magically” (with game updates) to maintain the desired price level.*
But how many players notice the underlying mechanics of money, and the lack of a genuine currency market? Very few.
This sort of confusion doesn’t just show up in currency. It applies to other financial markets like stocks. You might hear people say, “Money is moving into stocks!” Knowledgeable people might understand that sentence as a metaphor for trade volume, but at least some people are inclined to think that the stock market is literally sucking in money from around the world and then sitting on the cash. They’re not aware that it’s just a transaction: for every person buying a stock, there’s another person selling a stock. The money isn’t literally “going into stocks”, it’s just that the previously existing stock is now being sold at a higher price than it was before.
Again, this stuff isn’t obvious to students who’ve never thought about it before. They approach it like a video game, not like a market. They don’t see the underlying system. That’s why talking about buying and selling, and then reversing the perspective so that they consider both sides of the transaction, can clear things up. It replaces the magical arbitrariness of video-game thinking with genuine market-based thinking.
*Real-world money also appears and disappears with the push of the button, but it’s specifically the banking system that accomplishes this task. In a game, buying a +3 sword from the village smith will destroy money and a genuine banking system is not likely to exist.
In A Connecticut Yankee in King Arthur’s Court, Mark Twain writes about this type of innumeracy. Here’s part of a conversation between the narrator and a smith named Dowley about monetary values in two countries:
–Mark