Episode 404 - On this week's show I discuss the Big Mac index, a price index created in 1986 by The Economist. It provides some light-hearted insight into the purchasing power of currencies using the price of a Big Mac as a benchmark and I explain which currencies are under and over valued based on the index. I also discuss romance scams, explaining how they work before providing some tips that can help you to avoid becoming a victim. Finally, Andy talks about banking apps and reveals the best and worst for online security.
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Transcript highlights - Episode 404
The Big Mac index
Currency movements have a significant impact on our lives beyond the obvious effect on the cost of holidays and spending abroad. It also impacts inflation and also the value of our investments. For instance, a weak pound versus the currencies of those countries from which we import products and services causes inflation to increase.
In addition, a weak pound means that any overseas investments or assets rise in value when converted back into sterling. Obviously the converse is also true.
However, the concept of purchasing power parity (PPP) suggests that all currencies should move towards a rate so that the price of a basket of goods and services are the same, regardless of the country they are purchased in. The Big Mac index created by The Economist in 1984, which was originally a lighthearted take on this concept, uses the cost of a Big Mac as a benchmark to compare the purchasing power of different currencies. Over the intervenng years the concept has been refined and gained more credibility.
Using the index you can ascertain if the pound is overvalued/undervalued when compared to other currencies. You can use this to make a judgement of where the currency exchange rate should be for any given currency pairing based on the domestic price of a Big Mac. For example, currently £1 = $1.21, when according to the Big Mac index it should be closer to £1 = $1.41. For more information see the Resources section below.
Romance Scams
- According to Action Fraud more than £68 million was lost to Romance Scams in 2020.
- The number of victims has increased by 30% in the last year, according to Lloyds Bank.
- Romance scams usually start online via dating apps/sites or social media where the victim builds a relationship with someone online who ultimately fraudulently obtains money from the victim. Usually this is achieved by asking for money to help in fictitious emergencies or hardships.
- The scams can impact anyone regardless of their intelligence or financial literacy.
- 53% of victims are men, with an average loss of £8,234 according to Lloyds bank.
- The age group most likely to be impacted is 65 to 74 year olds, with an average loss of £12,000.
It is important to remain vigilant:
- Do not send money to someone you have met online.
- Do not share your bank details or other personal information.
- Be wary if the person always makes excuses as to why they can’t meet or appear on a video call.
- Be cautious.
Which banks have the best online security?
in this section of the podcast we discussed the latest research covering the topic (see the Resources section below for details).
In addition, here are some tips on how to protect yourself when banking online:
- If you lose your debit or credit card then freeze it via the relevant banking app or by calling the customer service line
- block certain payment types such as payments to gambling sites or purchases from outside of the UK
- allow real-time alerts from your banking apps so that you are notified of transactions when they happen
- do not click on any links in emails, text messages or WhatsApp, even if they claim to be from your bank - log online instead and check for any messages
Resources:
- 80-20 Investor - Take out a free trial
- The Big Mac index
- Romance scams - Lloyds bank
- Which banks have the best online security?
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