Agony Aunt: Lower NZ dollar makes a gap year more expensive

Dear Janine

We keep reading in the newspaper that a low currency is good for exporters and tourism, but people forget how expensive it is to travel now.

I realise holidays are a luxury, but kiwis do like to get away in winter. Our son wants to take a gap year and we are trying to explain to him how much more expensive it is, compared to a year ago.

Can you comment on this, because it would be good for him to hear it from someone independent. 

ANSWER:

I've got a sneaky suspicion you might be expected to provide some funding for this gap year?  In which case, pursed lips and gasping is completely appropriate when discussing exchange rates over the dinner table. 

You've got to admit, it will be water off a duck's back when it comes to teenagers and gap years.  A pesky exchange rate is just another hurdle they will conquer. 

The last 12 months have seen some of the biggest exchange rate movements we've encountered in several years, so it would pay for your son to perk his ears up and calculate how much it's going to hurt. 

We could bore him rigid with charts and four digit rates, but a meaningful example will show how the movements have hurt his back pocket. 

One of the most popular places teens head in their gap year is Thailand.

While the beaches of Ko Lanta and Phi Phi beckon, the Baht has been less welcoming.

A year ago $5,000 would buy 135,500 Thai Baht. Today it will cost $5800 to get the same amount; an $800 hike.  That's a lot of banana pancakes to give up. 

For those making their way to the Eiffel Tower, Colosseum and hopping around the Ionian Islands, the euro has given a rollercoaster ride.

While dropping from €63c for each New Zealand dollar to €60c in the last year, we rose through €72 in April 2015.  In cold cash $5,000 would have purchased €3,600 at the heady high. Now it costs almost $1000 more to get the same amount. 

The UK is another popular destination, but the plunge in the pound will mean a few more cousins' couches need to be secured.

A year ago $5,000 purchased £2,500. Today you'll need to add another $860 to get the same spending money.

The biggest mover in the pack is the US dollar.

Gap year students have never been attracted to the towering prices of New York, but many like to pass through San Francisco and Los Angeles on their way to Europe.

A year ago the kiwi was in full flight purchasing almost US85c.  Now we are grounded around US66c.

Our $5,000 used to buy US$4,250. We now need to cough up $6,350 New Zealand dollars to buy the same amount; an extra $1350. 

The only Steady Eddy location in the last twelve months is Australia. The rates are almost identical.

From your son's point of view a gap year is significantly more expensive, so it's time to think of ways to compensate.

Teenagers are the masters of invention, but it's not rocket science is it?

You either save more, work more or take a shorter gap. No doubt he will become an overnight expert in couch-surfing.

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.