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Dynamic Currency Conversion: Explained for Teens

April 12, 2024
min read

Traveling to new places can be an exciting adventure for anyone, especially for our kids and teens when they start traveling abroad. A kid’s first international trip can be incredibly valuable: encountering different cultures and ways of life are often eye-opening experiences, particularly at critical points in kids’ development.

We want to encourage our kids and teens to travel and experience new things, but we also want to ensure they’re prepared to take on these new experiences. A big part of that preparation includes educating our teens on what to expect when spending money in another country.

A lot of the typical spending considerations in the U.S., like sales tax, tipping, and other fees can look different in other countries. To help ensure your teen is prepared for this exciting journey, we want to equip you with the resources to confidently tackle these topics together before they depart.

Today we’ll be diving into dynamic currency conversion - to get started, let’s review exchange rates!

What is an exchange rate?

Before we get into dynamic currency conversion, let’s cover some basics of currency conversion in general, starting with exchange rate.

An exchange rate is a rate at which one currency can be exchanged for another currency. To the average person, exchange rates might seem arbitrary, but they’re influenced by things like market interest rates, economic activity, unemployment rates, and other factors.

If you hear someone reference the “strength” of one currency over another, they are usually referring to the exchange rate and how much of one currency it takes to equal another.

Most exchange rates are “floating,” which means that they go up and down depending on the supply and demand of the market. These changes in rates can occur often, so it’s worth researching the exchange rate between your home currency and the foreign currency before you travel abroad.

What is dynamic currency conversion?

Dynamic currency conversion, or DCC, allows you to make point-of-sale (POS) purchases with a credit or debit card in a foreign country, using your home country currency.

That’s quite a mouthful, so let’s zoom out for a moment!

Depending on where you’re traveling from and to, the local currency may be different from what your teen’s used to. In the U.S. we use dollars as our local currency, though there are dozens of different currencies across the globe, from euros to pounds to yen and beyond.

Let’s use an example. Say you’re an American (so your home country currency is U.S. dollars) traveling through France, where the local currency is euros (€) . You’re making a purchase with your credit or debit card at a cafe in Paris and when you insert your card, you’re given an option to make your payment in dollars ($45.01) or euros (€39.00). This is DCC in action.

It might seem easier to choose your home currency option to understand the price in a more familiar context (and skip out on having to do the conversion math).

However, the point-of-sale screen won’t typically show you the specific exchange rate being applied, and dynamic currency conversion often uses a higher exchange rate than with other exchange methods. Without that transparency, it can be difficult to know which option you should choose.

The point-of-sale screen also may not show whether any additional fees have been applied, making it unclear how much more you’re paying if you choose the home currency option. At the end of the payment, you can actually end up paying more overall if you go with your home currency rather than the local currency.

What's the difference between currency conversion and DCC?

While similar in name, currency conversion and dynamic currency conversion (DCC) are different - as we discussed earlier when explaining exchange rate, currency conversion refers to the act of converting one currency into another.

Dynamic currency conversion, on the other hand, is an optional service offered by foreign merchants at the point-of-sale. Dynamic currency conversion often comes with a high currency conversion rate and additional fees that can make the transaction more expensive. DCC can also differ significantly from one merchant to another, making it difficult to budget for.

Dynamic currency conversion: final takeaway

Chances are your teen will encounter dynamic currency conversion during their trip abroad. While it might be tempting to elect to pay in their home currency, paying in the local currency (and doing some quick conversion math for budgeting) can potentially save them money in the long run.

Encourage your teen to familiarize themselves with the exchange rate of their home currency and the local currency wherever they’ll be traveling, so they have a sense of the difference ahead of time. This can help them budget more accurately for their trip, and hopefully lessen any not-so-fun surprises when they (or you!) review their spending post-trip.