The cost of living is a cost that maintains a specific level of living, in a given geo-location. On the other hand, the standard of living is a measure of how wealthy and comfortable people in a geographical location, indicated by their material property, and the goods they need.
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 people pay, for availing the necessary items and amenities. It also helps to determine the cost required in a city to live a life without any issue. The cost of living is not fixed for all the people living in the same city. This is because of the differences in their lifestyle.
The cost of living is indicated through the measure of a Cost of Living Index and the Parity of the Purchasing Power.
- The Cost of Living Index: This index is a hypothetical price index that measures the living cot over time in countries. The index is availed quarterly and it considers the price of services and goods, allowing for the substitution with other valuables as prices fluctuate. The index is best used to compare the cost of living amongst different countries.
- Purchasing Power Parity: To measure the cost of living, this variable utilizes the difference in currencies to measure the cost of living. It is a theory which states that the rate of exchange between two currencies is equal to the ratio of the purchasing power of the currencies. Thus, it is correct to extrapolate that there is a difference in the cost of living, among the countries that use different currencies.
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 is a way of living in which a person buys all the necessary items required to keep his/her status at the desired level. This can be based on our location or class. This is a major factor to define various important aspects of 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. The standard of living keeps on changing with time. This is because of things which were available at a certain cost in the past are not available at present.
The standard of living cannot be estimated by one singular measure of the standard of living, since it is made up of the many indicators listed above. However, the most important and vital indicators of the standard of living are: the real income of a person after inflation is adjusted, and the rate of poverty.
For the standard of living, there are two variables that matter. The availability of more income means that people have a higher purchasing power. At the same time, the rate of poverty reduction increases and the quality of life increases, thus enabling more equitable distribution of resources. Some countries with the highest standard of living are Finland, Canada, Denmark, Australia, Sweden, Switzerland, Norway, etc.
The 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.
These are some of the differences between the cost of living and standard of living. They both are important terms which are used to record various types of information. The information can be even on the international level like GDP. While the cost of living is used to define the money which is required to survive, the standard of living is used to define the money which is spent by an individual to maintain his status or class.
The two entities that are focal in this discussion are closely related, beyond any doubt, in the sense that the cost of living is the price for keeping within a certain standard of living. The cost of living cannot be controlled by any interventions that stem from the government since it is mainly dependent on the resources’ demand and supply, within a geographical area. However, initiatives can be taken by world organizations and governments, to improve the standards of living in countries, or even in the world.
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