Cost of Living and Standard of Living: The Difference

 

At a recent class reunion, some classmates wanted to understand what’s the difference between the cost of living and standard of living and how much is required to survive after retirement. 

So, if 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 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 may understand the differences between cost of living and standard of living. 

Comparison Chart

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 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. 

To sum up, the cost of living indicates the amount of money required to maintain the minimum level of subsistence, by affording the 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. 

For Malaysia, the overall cost of living is low compared to Western countries. It is about 40% to 50% cheaper than living in the US or the UK. A family of four could survive on RM8,000 per month without rent. Average local salary is RM4,000 per month. That suggests at least two members of the family are working adults. If it is on standard of living, it is probably dependent on lifestyle and some may require RM15,000 – RM 20,000 per month! 

Reference:

Difference Between Cost of Living and Standard of Living, by Key Differences