March 23, 2016

Do Foreigners Contribute to the "Rich Gringo” Label?

I think we all know the answer to this. Some foreigners do contribute to the rich gringo label because they don’t speak Spanish and are unable to negotiate for anything and they keep comparing to North America.  This has been going on for decades and is “why” prices shoot up like they do in third world countries where foreigners go.  

Maybe they like paying first world prices in third world countries, eh?
 

If you know anything about precedent than you should know how it works. In a nutshell it goes something like this. The foreigner comes along and says to a landlord about his rental, “What a great price! Back home I was paying three times this amount for a 3 bedroom rental!”  The foreigner goes on and on talking about how cheap the home rental is with his wife and the landlord.  The landlord is jubilant as greed overtakes him.
 

Six months later the next foreigner comes along, a bit wiser about price structure in a developing country and says to the same landlord, “The price is too high”.  And the landlord says, “The last foreigner paid it and so I’m not going any lower”.   The landlord is thinking to himself, “This guys a Norte Americana, he can afford it”.  
 

Ah-ah!  Eventually the nonchalant attitude about prices from just a few foreigners, contributes to the higher prices for all gringos and the locals too!
You see, the price precedent was set with the first foreigner that paid it and the fact that he is going on and on about how cheap it is gives the landlord even more incentive to raise the price again and again!
 

Cheap is Subjective: to who is it cheap? We have all said and done things that have made the locals feel a bit resentful. We don’t realize we’re doing it, but when we say how cheap things are, or when we smirk and giggle at some of the prices for things, we are essentially saying, “I can afford this and live better than you (the locals) because my money will go further in your country."
 

Why would it spur resentment? Well, for one thing the same things we think are cheap ARE NOT cheap to the locals. When we first moved here we had to keep reminding ourselves of this but we’re just one family. Many tourists and newcomers to Cuenca play the comparison game and talk about how cheap things are in front of the locals and it causes offense and the consequences are higher prices to the gringos on everything!
 

One of the mixed blessings of the nature of freewill is that we can think or believe whatever we want.  We are free to believe we don't affect the market, any market, even though we are voluntary participants in a market.  The "market" is an aggregate of each individual participant.  Each individual has a say in the market by the fact that we are in the market and are participating in the market, buying and selling, renting etc.   The sum total of each participant is the total 'market', in this case, the rental market.

Whether we 'believe' we affect the market or not, has no bearing on the fact that you/we are a participant and each participant affects the market.  Where the 'market' is today, is a result of the individual decisions each participant has made on what price to pay. As you can see, being 'in the market' is not a judgement, its neutral.  You freely participated, paid the price you 'felt' was fair to you and each individual doing the same thing combines to make the total market price for rentals.
 

Now comes the interesting part: everyone needs a roof over their head.  That includes locals that are on a small Ecuadorian salary of less than $400 per month, and Ecuadorian households that 'average' $11,000 per year household income, according to GDP per Capita research.  That is an average, meaning some households are above that, but some house holds are below that.
 

Now then, when the percentage of 'market participants', in this case, foreign renters, accelerates as a total number of participants, as in when a place is marketed to several hundred million spectators world wide, when a place is nominated:  "best places to retire" etc. and when these foreign participants all act in tandem the same way, i.e. thinking price is "cheap" and therefore are "willing" to pay more, i.e. willing to pay much more than the locals pay, then is it any wonder that when this larger number of 'willing' participants are 'willing' to pay more, that the market will respond by accommodating them and raising prices? 

Is it any wonder?
 

Of course its no wonder.  But hey, people are complex, and they have free will, and they can 'believe' what ever they want, even though the 'market' i.e. the rental market, proves other wise every single day with higher and higher prices.

Freewill is free but is not without consequence.  And those that willingly put their heads in the sand eventually get hurt the most, as in the foreigners in Panama that are trying to get out of the real estate market as fast as they can without losing their shirt, and before someone hurts them physically.   Because the 'consequence' of their 'freewill belief' that they could just do whatever they wanted to the local market without consequence to themselves, that bubble is bursting as we speak.
 

Dear reader, this may be a hard pill to swallow but as always with truth, truth may hurt but have you ever tried blindness?

Remember, there’s always someone richer than you that will think a rent price much higher than what you’re paying, is ‘cheap’. Bottom line is we should remember to never compare North America with South America in any fashion about any matter whatsoever because there is NO COMPARISON.
 

Until we write again, you might also like these articles about why foreigners pay higher prices in developing countries. 


We're an Expat Family of Five, Living Frugal, Healthy and Happy Abroad. We live in Cuenca, Ecuador and travel the Ecuador coast whenever we get a chance. We just adventured throughout the country of Panama for five weeks! Come along and enjoy some of our experiences with us!

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