Cost of living is the amount of money needed to sustain a reasonable standard of living and afford basic expenses such as housing, food, taxes, and healthcare. Cost of living data is used to track and compare variations in the price of goods and services over time or between multiple locations (usually cities or countries). Broadly speaking, developed countries (or those in the global north) often have a higher cost of living than do developing and least-developed countries (though standard of living is generally higher), which are usually cheaper to live in and also notably poorer. Also, cities and metropolitan areas tend to have a higher cost of living than rural areas. Ideally, areas with a higher cost of living would also have a higher average income to offset those costs, but this is not always the case.
Determining the cost of living in a region or country is a complicated process. As such, each source has its own equation for determining cost of living. Most sources express cost of living as a number (often referred to as an index) which is then compared to a baseline country or city. For example, Numbeo uses New York City as a baseline with the value of 100.00, so countries whose average cost of living is lower than that of New York City would have a cost of living index lower than 100.00 and countries with a higher average cost of living would have an index of higher than 100.00.
Top 10 Countries with the Highest Cost of Living (source: Numbeo 2022)*:
|Rank||Country||CoL Index 2022||Rent||Groceries||Restaurant||LPP|
* Full data available in table after text.
As seen above, cost of living can also be broken down into individual indices, such as rent or restaurants. The rent index is an estimation of prices of renting apartments in a location compared to another. The restaurant index compares prices of meals and drinks in restaurants and bars in a location compared to another. The final metric shown, local purchasing power (LPP), is a bit unique in that a higher number is actually preferable. Local purchasing power essentially shows the relative value of the average wage in a given location.
According to early 2022 data, only two countries have the cost of living higher than New York City: Bermuda and Switzerland. Bermuda's cost of living index is 146.04, and Switzerland's is 123.35. However, it is worth noting that comparing an entire country's cost of living index to that of a single city can create a skewed perception because most nations are composed of both cities and rural areas, which substantially decrease the overall average cost of living.
For example, expenses in New York City are typically higher than in most other parts of the United States. This is reflected in the fact that the cost of living index for the United States as a whole is roughly 20 points lower than that of NYC alone. Moreover, several foreign cities have higher costs of living than New York City.
However, it is important to note that a higher cost of living is often indicative of a higher (or lower) standard of living. For instance, both Norway and Denmark have a high cost of living by most accounts, yet both also rank among the world's best countries in which to live as mentioned earlier, different sources use different equations to measure cost of living, so the list can vary by source.
Top 10 Countries with the Highest Cost of Living (various sources)*:
|2||Switzerland||Cayman Islands||Hong Kong||Iceland|
|9||Bahamas||United States||Israel||New Zealand|
Top 10 Countries with the Lowest Cost of Living (various sources)*:
* Full data available in table after text.
According to Numbeo's data, Pakistan has the lowest cost of living index globally at 19.92. This means that the cost of living in Pakistan is more than 80% lower than the cost of living in New York City. Following Pakistan are Afghanistan (20.37), India (24.43), and Colombia (26.72). However, as mentioned previously, different sources rank these countries differently. This may be due to variations in the way cost of living is computed by various sources or it may be because one source includes data that another does not. For instance, Numbeo lacks data from Tajikistan, which appears on multiple other sources' lists.
Challenges of country-to-country comparisons
As with other economic variables such as GDP and GNI, comparing the cost of living in one country to another can be a formidable task. One major issue when comparing the cost of living in different countries is the challenge of finding similar items to compare in each country.
For example, the item "shoes" could list the price of basic sneakers in one country and the price of brand-name basketball sneakers in another, which would throw the comparison off balance. Even an item as simple like a dozen eggs can be problematic. Eggs can be white, brown, or blue; can have various sizes; and can be organic, free-range, Omega-3 or vitamin-enhanced, and so on. Each of these factors influences price, which can confound country-to-country data comparisons.