I’m not an expert in economics, but I am aware of the economic differences between Taiwan and the U.S. Something that always concerns me is when I see people directly determining the price of an item in Taiwan by a simple exchange rate conversion. A shortcut for the conversion is that 1 New Taiwan Dollar (NTD) is equal to 30 U.S. dollars (USD). When someone buys a breakfast that costs 60 NTD, the common response is, “That’s cheap! It’s only 2 U.S. dollars.”
But that’s 2 U.S. dollars from the point of view of someone with an U.S. income and used to an U.S. cost of living. What does that 60 NTD breakfast really feel like to the average person in Taiwan? How do we figure out the price in USD so the average American would feel the same way about that breakfast?
We can compare incomes and find the price of that breakfast in U.S. dollars based on income. The median income in the U.S. is roughly 52800 USD. The median income in Taiwan is 39600 USD. The average Taiwanese earns 75% of what the average American earns. For 1 USD that a person in the U.S. earns, a Taiwanese person is earning 75 cents. Based on this income discrepancy, 1 NTD is equivalent to 22.50 USD. The price of that 60 NTD breakfast for the average Taiwanese feels like a 2.67 USD breakfast for the average American.
That probably doesn’t seem like a large difference, but that is based on median incomes. Now let’s look at a particular income bracket: college graduates. College graduates in the U.S. earn an average of 45327 USD a year. Taiwanese university graduates earn 26722 NTD a month, or 320664 NTD a year, or 10688.80 USD a year. Taiwanese college graduates earn on average 23.58% of what an American college graduates earns. For the 1 USD that an American graduate earns, a Taiwanese college graduate earns 24 cents. In this case, 1 NTD is equivalent to 7.20 USD. So to a Taiwanese college graduate, that 60 NTD breakfast would feel the same as a 8.33 USD breakfast for an U.S. college graduate. I’m sure most of you would think that that breakfast is rather expensive!
I know I’m probably missing some things. Maybe I should be comparing amount of disposable income instead of salary. I’m only comparing the price of breakfast, and not taking into account other items that contribute to the total cost of living.
It’s important to understand the local economic situation and not just base price comparisons on the exchange rate. Just because one thinks something is cheap relative to the exchange rate does not mean it is affordable to the average person in that country. Of course, when you’re on vacation, you can spend what fits in your budget, but some awareness of the value of items to locals may help you better understand a place.