Big Mac or iPad?

Investing
Big Mac or iPad

If you could choose between a Big Mac and an iPad what would you choose? I believe the natural answer is an iPad for two reasons:

  • It is worth more from a monetary perspective.
  • You can use it multiple times and possibly for a very long period.

Look, if you were stuck in the desert with no food the answer might be different but in most cases people would choose the iPad. So why do so many people choose the Big Mac instead?

I have been thinking about this post for a while although something recently triggered it again. So let me provide some context before making my point.

America First

My wife and I went on holiday to visit our best friends in the USA last year. The husband whom I have known for half my life works for an international company. He was offered a contract position for a period of 3 to 5 years in Baltimore MD, it was a great opportunity which they could not resist. His wife has also since found a job and they have now settled in after 2 years.

I have visited the US many times before; it has a fond place in my heart since my first visit with my parents in 1994 which naturally included Disney World. It is a country where you can experience so many things, plus the fact that there is no language barrier is great. So I am probably a bit biased about the US.

On this visit we visited many of the North Eastern States (MA, VT, NH, PA, MD, WV) and in my observation the trend has always been very similar in the whole US. People eat out a lot and not just junk food or fast food like the common perception. From my observation there is a huge amount of restaurants and fast food chains everywhere and they are normally packed during breakfast, lunch and dinner. Not a lot of people pack lunch to work (which my friend also confirmed) and I believe the home dinner frequency is quite low.

Now I know this might be generalising but I really feel it is the case, definitely more so compared to South Africa or Europe.

Back Home

A recent article on Financial Samurai reminded me of this again. It basically starts off with the marshmallow test. How this works is you put a marshmallow in front of a toddler/kid and explain that they can either eat it now, or wait 5 minutes and receive another one. Then they will have 2 to eat.

Naturally as a frugal, personal finance, compound interest loving father I wanted to do this with my 4.5 year old daughter. My son that is 2 years old would not see the reason in this yet and throw a tantrum if he does not get at least 5 (perhaps another valuable life lesson?). So one evening back from work I did the experiment with a small chocolate ball (the ones you buy at the Woolies  at 75% off on the after Christmas sale…I know). I did this because I know my daughter loves them.

While explaining the rules to her she already told me that she will wait for the second one. Although it was a tough 5 minutes she did pull it through and made her dad very proud (my little wealthy contented princess). So she got 2 chocolates and has actually asked me since if we can play the game again. Naturally I try to teach a good life lesson whenever this comes up and hope something sinks in.

So what?

In our trip to the US we bought an iPad. iPads are far cheaper in the US than in South Africa. The specific iPad we bought costs $370 in the US, while the equivalent cost in South Africa is more than $600. That is a huge price difference, but the opposite is true when it comes to food. My previous job was with a large international Fortune 100 company. I regularly hosted colleagues from many different countries and everyone would comment on the good quality, large portion size and low price of meals at local restaurants. My previous boss was an expat from Europe and he said it is not worth making food at home, although I would definitely not go that far. If you are frugal and want to save on your budget, grocery shopping and home cook meals are definitely the way to go.

So, while sitting at a packed Chipotle (which we don’t get in SA) for lunch it made me wonder how many of these lunches it would take to buy that iPad we just purchased.

Big Macs per iPad

You have probably already heard of the Big Mac index ran by The Economist as an index of costs across various countries using the same product a Big Mac as the commodity. This naturally came to mind when trying to figure out how much you should sacrifice in order to buy an iPad (which I attach a lot of value to). I got some of the newest results on Big Mac prices, but finding iPad prices proved to be a bit more difficult. I ended up using an old price from various sources of a 2013 iPad 16 Gb with Retina display (sounds ancient right?). This with the hope that the price correlation would stay pretty consistent over the past 5 years. It is however not the case, because if you take the example of the iPad we bought the ratio for the US would be 75 and for South Africa it would be 299, which is even further apart. From a holistic point of view it probably serves its purpose, the below table illustrates the Big Macs required before you can purchase an iPad.

If I do not have your country on the list I am sorry, I could not get all the data but it should be easy to calculate yourself. The table provides a good barometer of how many times you must give up on that Big Mac in order to purchase a new shiny iPad with the global median sitting at 169. You can just see the price parity by how many less Big Macs I have to sacrifice to buy an iPad in the US. The problem is there is much more to that, the Starbucks in the morning, the supersized meal for lunch (nobody only buys the burger/sandwich right?). Then you can also get a better deal on buying a certified refurbished iPad which will reduce this ratio even more.

The point is if you delay certain gratification you can get so much more for it later like with the marshmallow test. In specific countries where these price differences are that much smaller (the US and Canada falls in the top 3) it is even easier with the recent US ratio being only 75! I already hear the live for the moment arguments and rightfully so, within boundaries, but that is a topic for another day.

For now you need to make the choice: Big Mac or iPad?

Always grow your wealth for tomorrow while being content with your wealth today.

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