How to Calculate the CHEAPEST TRAVEL DESTINATIONS Using Purchasing Power Parity (PPP)

The most common question people ask is “what are the cheapest travel destinations.”  The simple answer would be to make a list of countries that you think are the cheapest according to what you feel is “cheap” by comparing it to your home currency.  But that is subjective, and it only takes into consideration the money you use.  Therefore other factors must be considered to answer this question truthfully.

A more comprehensive and scientific way to calculate cheap travel destinations is to use purchasing power parity (PPP).  PPP tells you what value of goods your currency can buy, according to the exchange rate.  For example, let's say you want to travel to Mexico, and you want to figure out if Mexico would be a cheap travel destination for you coming from the USA.  You could start with something simple that is found almost everywhere: a can of Coca Cola.  In the USA a can of Coke cost $1, while in Mexico it’s 5 Mexican Pesos (0.25 cents USD), this is a ratio of 1:5.  Then you compare this ratio to the actual exchange rate, which is $1= 20 Mexican Peso, a ratio of 1:20.

Another way to look at it is to convert everything into your currency.  For example, the American would pay $1 for the Coke in the USA and $0.25 for the Coke in Mexico, while the Mexican would pay 5 Mexican pesos for the Coke in Mexico and 20 Mexican Pesos for the Coke in the USA.

In other words, an American traveling to Mexico can buy four cans of Coke in Mexico for the same price he would pay in the USA.   He could buy four times as much stuff in Mexico as you could buy in the USA.  On the other hand, a Mexican traveling to the USA would pay four times more than usual for items in the USA than they would in Mexico or 25% of what they could typically buy back in Mexico.

The Mexican tourist would want to buy sunblock, clothes, snacks, toiletries, and anything else they might need for their trip at home before traveling to the USA.

The American traveler would want to go with empty bags and load up on everything they might need at a 75% discount in Mexico.  He should fill his luggage with goods to bring home as well to benefit from the PPP.

Using these examples gives you a simple but very accurate way to figure out if you’re going somewhere that is cheaper or more expensive for you and how much you need to budget for travel expenses.  You can check out the World Bank’s website in this link to see what your currency would buy you in another country.  Although the exchange rates are not updated regularly, you can get a general idea of how PPP works.  I also suggest reading the famous “Big Mac study” presented on the Economist website.

    This simple calculation will help anyone from any country figure out where the cheapest travel destinations would be for them. 

 

For more travel tips, check out my latest Amazon book.

How to Travel the World and Live with No Regrets.: Learn How to Travel for Free, Find Cheap Places to Travel, and Discover Life-Changing Travel Destinations. (Cheap Flights Book 1