Ask the Expat Q&A
Moving Abroad During Uncertain Economic Times
By Volker Poelzl
Living Abroad Editor
In response to recent questions from readers about finding work overseas, I would like to widen the topic and talk about “Moving Abroad during Uncertain Economic Times.” The subprime mortgage crisis—which started in the U.S. last year—has now widened into a serious worldwide financial crisis with an expected slowdown of the global economy for the foreseeable future. Unfortunately, the current crisis affects everyone who is considering a move overseas, regardless if it is temporary or permanent, or if it is for study, work, or retirement. I am not suggesting that everyone should cancel their plans to live abroad, but that during this time of a global economic crisis future expatriates should plan every financial aspect of their stay abroad very carefully.
There are several important concerns future expatriates should bear in mind. One of them is the fluctuation of currency exchange rates, especially since the U.S. dollar has weakened significantly against the world’s major currencies over the past few years. The dollar has recently gained strength, as the global economy has weakened, but with a high U.S. budget deficit, a high trade imbalance, and a weak domestic economy, it is far from certain that the dollar will hold on to its recent gains. The value of the dollar particularly affects expatriates who depend on U.S. dollars to pay for their stay overseas. When I lived in Rio de Janeiro as an exchange student, Brazil had recently introduced a new currency, which was initially kept very high against the dollar. As a result, the cost of living during my yearlong stay in Brazil was higher than in the U.S. It was a bad decision on my part to study in Brazil at that time. Similarly, a few years back in Portugal I had to pay more for Euros every time I withdrew money from the ATM. Although small devaluations of the dollar will not seriously affect your budget, it can add up over an extended period of time.
The economic stability of your host country is another important consideration. High inflation can make it difficult to keep control of purchases and expenditures. There are currently only a few countries in the world where inflation is astronomical, but it is best to take a look at your host country’s financial health before you go abroad in order to avoid unpleasant surprises. Also keep in mind that the current global economy could lead to higher unemployment rates and economic hardship in many countries, which in turn could lead to serious strikes and civil unrest.
A sudden drop in the stock market can also affect the value of a currency. During the Wall Street crash of 1987 I was on a yearlong trip in the South Pacific Islands and all my travel funds were in travelers checks in U.S. dollars. The market crash and resulting devaluation of the U.S. dollar probably diminished my travel budget 10-15%. I made up for it by working in New Zealand for a few months, but not everyone can expect to easily find work when they run out of funds. However, it is clearly difficult to predict which currencies are likely to gain strength or lose value during a global stock market crisis. Most recently it was the dollar that gained strength when the bottom fell out of global stock markets and investors moved their money out of emerging economies and into safer investments in U.S. dollars.
Another important factor that affects everyone planning on living overseas is the fact that personal credit has become tight, especially as U.S. Credit card companies are lowering credit lines and increasing interest rates. If you plan on using your credit cards to budget for an extended stay abroad, credit card policies can be problematic. One late payment on a credit card and your interest rates will often be doubled, so you should carefully plan your credit card expenses and make sure to pay your bills on time. During this time of tight credit, it might be a good idea to pay cash for as many expenses as possible. This will save you from future problems regarding your available credit and credit card interest rates.
International Exchange Students
In response to the credit crisis the U.S. congress has been working on measures to make credit more easily available to consumers in the U.S., but if you are a student, you might still find it difficult to secure a student loan, which could impact your planned overseas studies. Before going overseas to study, make sure that have received your loan disbursement and/or grant money so that you can safely rely on these funds.
In the United States, retirement plans, including pensions and 401Ks, have lost US $2 trillion in the past year and a half--about 20% of their value. The steep loss in retirement savings significantly affects the finances of people planning on retiring comfortably overseas. Financial experts say that this is not a good time to cash in retirement savings, and you might be better off to wait out the crisis and put off your overseas retirement by a few years.
Those thinking about finding work overseas will no doubt find it harder to get a job today than only a year ago. Companies worldwide are laying off workers, scaling back expansion plans, and downgrading profit forecasts. This also means that fewer multinational companies are sending employees overseas, and fewer companies around the globe are interested in hiring foreign workers. Even if you are lucky to be offered a job overseas, the question remains how secure it will be for the next few years. The global economic outlook remains dim, and it is unlikely that the recovery will be swift or will quickly give way to robust growth.
For those interested in investing overseas to buy property or open a business, this is also a difficult time. Several countries have recently asked the International Monetary Fund (IMF) for loans to meet their foreign currency needs--which hints at serious economic problems. When Argentina defaulted on its international debt back in 2001, the country’s economy went into a slump and the currency lost much of its value. In response, investors pulled their money out of Argentina, further contributing to the economic decline. A sudden economic crisis in your host country could seriously devalue your overseas investments. If you are planning on making a personal or small business investment abroad, make sure you do your homework and get expert advice to avoid major mistakes.
Gap Year Abroad
These uncertain economic times also affect those planning a Sabbatical, career break, or gap year overseas. Typically, these short-term expatriates have no other financial resources to rely on except their savings and their credit, and this may not the best time to plan an extended stay overseas simply for the purpose of an overseas experience. If your finances are stable and you have sufficient savings however, there is nothing that should deter you from going abroad.
Although my assessment of the current global economic outlook concerning future expatriates might appear rather bleak, keep in mind that governments worldwide have implemented a variety of serious measures to prevent further deterioration of the global economy and financial markets. Although we may experience a period of slower economic growth on a global scale, I believe that with careful planning and in-depth research about the economic situation of their planned host country, expatriates can still have a successful overseas experience. The current global economic crisis just requires a bit more savvy, knowledge and planning to ensure a successful and financially stable move abroad.
To read more about financial advice for expatriates, see my column about Making Your Dollars Last Abroad and our section on Financial Matters for Expatriates and Travelers Abroad.
Author's note: This column has an interactive format, and readers are encouraged to submit questions, suggestions, and commentaries, some of which will be addressed in the upcoming issues of the Transitions Abroad Webzine. If you have questions about living abroad that you would like have addressed, you can send them to email@example.com .
Volker Poelzl is a frequent contributor to Transitions Abroad. He has traveled in over thirty countries worldwide and has lived in ten of them for study, research and work.