When a person migrates or decides to relocate to another city, the first thing that comes to his/her mind is how much money is required to fulfil the basic necessities of life there. In this context, there are two basic economic concepts, i.e. Cost of living and Standard of living, which gives you an idea of the general price level in an area and the degree of wealth and luxuries, that a particular group enjoy, respectively.
There are instances when people often misinterpret these two and use them interchangeably, but they are very different from one another. Cost of living is nothing but the cost of subsistence, i.e. the expense that people incur to live in a geographical location. Conversely, the standard of living refers to the level of material comfort possessed by an individual or a group in society.
In this article excerpt, you will understand the differences between cost of living and standard of living, take a look.
Content: Cost of Living Vs Standard of Living
|Basis for Comparison||Cost of Living||Standard of Living|
|Meaning||Cost of living implies the general level of prices of the goods and services which a common man can afford, for his regular needs.||Standard of living refers to the level of money and well-being, that people enjoy in a particular country.|
|Measures||How expensive it is to survive in a place, in comparison to another.||How well the people of a particular class live, without compromising their needs and wants.|
|Linked to||Wages||Quality of life|
|Indicators||Cost of living index and Purchasing Power Parity||Real income per person and poverty rate.|
Definition of Cost of Living
Cost of Living refers to the amount of money required to maintain a minimum standard of living, by being able to afford the basic necessities of life such as food, clothing, shelter, transportation, telephone and internet, recreation, education, healthcare, taxes and other utilities. It determines what amount you pay, for availing the necessary items and amenities.
With the help of cost of living, one can easily make a comparison between one place to another, as it differs from area to area and also changes over time, i.e. advancement of technology, modernisation and industrialisation lead to the increase in the cost of living.
Cost of living is measured by ascertaining the average cost of the basket of goods and services which are essential for livelihood, for the people living in that area.
Some countries with the highest cost of living are Bermuda, Switzerland, the Bahamas, Norway, Denmark, Iceland, Luxembourg, Singapore, etc.
Definition of Standard of Living
Standard of Living, as the name suggests is the degree to which a particular socio-economic class can avail the wealth, comfort and material items, in a particular area. It is used to determine the relative prosperity of a demographic group in a country.
The standard of living of a family or residents of the region basically depends on several factors like income, employment rate, poverty rate, quality of education and healthcare, religious and social freedom, level of crime, rate of inflation, infrastructure, life expectancy, economic and political stability, etc.
GDP per capita is the commonly accepted indicator of standard of living, which is calculated by dividing the gross domestic product with the population. GDP stands for Gross Domestic Product which implies the total value of goods produced and services delivered by the residents and non-residents within the boundaries of the country in a particular financial year.
Key Differences Between Cost of Living and Standard of Living
The difference between cost of living and standard of living can be drawn clearly on the following grounds:
- Cost of Living refers to the price of the basket of goods and services, which are considered a must, for a person or family’s livelihood in a particular place. On the contrary, Standard of living indicates our reasonable scale of expenditure in a particular city or country, i.e. the products we use, the services we afford, our attitude and moral values.
- Cost of living is used to measure the amount one has to spent to afford the basic necessities of life, in order to survive in that city, in comparison to another city. As opposed, the standard of living is used to measure the financial health of the population, as it indicates the way people of a particular city live, without deferring their needs and wants.
- Cost of living is often calculated by the cost of living index and purchasing power parity, whereas, the standard of living can be determined with the help of real income per person and poverty rate.
- Cost of Living is linked to wages, of that particular area, as when the expenses to live the city is higher, the wage scale is also higher. In contrast, the standard of living is directly related to the quality of life, i.e. the higher the standard of living of a family or community, the high will be their quality of life.
To sum up, the cost of living indicates the amount of money required to maintain the minimum level of subsistence, by affording the basic necessities of life. As against, the standard of living ascertains the degree of subsistence of a socio-economic group as regards the sufficiency of needs and comforts in the day to day life.
Here one thing is to be noted that, cost of living is based on the standard of living, and this is due to the fact that “the higher the standard of living, the more expensive it will cost to the people to maintain that level“.