Is Living in Europe Cheaper Than in America?

Overall, Europe often has lower costs when measured against the United States. These financial benefits should be measured carefully against factors including income level, monetary conditions, destination, and economic conditions. International travel often involves time commitments and expensive trans-Atlantic airfare; making it worthwhile takes good financial sense and planning.

Where a person stays in the U.S. and Europe makes a difference in cost, and since residential expenses are among the largest for most households, locality is a significant factor to consider. For example, San Francisco, New York City and Washington, D.C. have rental rates well above the national average. Similarly, Paris, Hamburg, and Barcelona have higher-than-average rates within their respective countries. Statistics such as the Expatistan cost of living index also show southern Europe to be less expensive than many northern European destinations.

Currency values and local pricing also influence costs. The Big Mac Index is an example metric that shows how specific retail chain costs differ across countries using a base currency such as the dollar. To illustrate, a Big Mac costs less in Europe even after adjusting for the national gross domestic product (GDP) per person. In other words, individuals and families with dollar-denominated incomes are more likely to experience a higher standard of living in countries such as Spain, France, and Germany. The extent of this benefit fluctuates over time as currency exchange rates rise and fall.

Taxes are higher in Europe and include a value-added tax (VAT) that can be as high as 25%. This sales tax is refundable for American tourists if they obtain and complete VAT refund paperwork and do not use the goods before returning to the U.S. Even with VAT, many European goods and services are still less expensive than the same or similar items in the U.S. Another benefit is that Americans who pay U.S. income tax do not necessarily have to pay European income tax even if they live there. Since top tax brackets on earnings range between 40 to 50% in France, Germany, and Spain, after-tax income for higher-earning Americans is greater.

Even though the cost of living in most of Europe is lower than in the U.S., smart spending on certain items such as designer jeans and gasoline is wise. This is because these consumer goods are typically priced higher in Europe. Since many European vehicles have double the fuel efficiency of American models, compensating for higher gas costs is possible. Another factor pertaining to products is the rate at which costs rise. According to the Bureau of Labor Statistics International Consumer Price Index (CPI) and Harmonized Index of Consumer Prices (HICP), much of Europe, with the exception of France, experienced a higher rate of inflation than the U.S. between 1999 and 2013.

The time of year also influences the cost of goods and services in specific locations within the U.S. and Europe. For example, short-term rental rates in popular Spanish beach areas such as Tarifa and Costa de la Luz are likely to be higher when an influx of tourists occurs. Carefully navigating or locking in tenancy rates or rent-to-own arrangements during the off-season is a way to circumvent this issue. Familiarity with local shopping trends and tourist price traps, and even learning the local language also helps.

Europe is cheaper than the U.S. based on variables such as prices of goods and services, exchange rates and market conditions. Several quantitative indicators verify that Europe is cheaper, yet some important factors account for higher costs in some circumstances. Being savvy and knowledgeable about local customs, price patterns and international financial matters helps with maximizing the advantages.