Identifying the countries with the lowest cost of living is an imprecise science, since prices rise and fall and economies both grow and sputter; a country with a high cost of living one year may have a relatively low number the next. Historically lower costs of living are found in what is known as the “developing world,” in regions like sub-Saharan Africa, Central America, and Southeast Asia. It isn’t often expensive to live in countries in these places, but at the same time there isn’t usually much opportunity for income or salary growth, either. In many cases the countries with higher standard salaries also have generally high costs of living. The United States and Canada, Australia, and much of Western Europe falls into this category. Cost of living is usually best understood in context, since many of the countries with the lowest rankings are also — though not necessarily always — some the poorest and the most unstable.
India and Pakistan traditionally have some of the world’s lowest living costs, but a lot of this depends on region. In most cases national averages are just that — averages that can be different in high-density cities than they are in rural areas. Several African countries, including Algeria, Egypt, and Morocco, also typically have relatively low scores when it comes to cost of living indexing.
In South America, the country with the lowest cost of living is traditionally Bolivia. Bolivia is one of the region's poorest countries, and is largely divided between indigenous peoples who make up most of the population and a wealthy elite that has, at least historically, controlled political life and the economy. The country has experienced several political crises, most related to control of natural gas reserves, which are one of Bolivia's few natural resources. These conflicts and the general instability of the country as a whole has probably contributed to its relatively low cost of living.
Nicaragua, which suffered considerable political unrest in the 1980s, has enjoyed more economic growth since a 1990 peace agreement, and the tourism industry has had a rebound. The Marshall Islands, similarly, offer warm temperatures, sandy beaches, and waters ideal for fishing and scuba diving. Several of the islands were used for nuclear testing by the US in the 1940s and '50s, when the country was occupied by the United States, and some areas are still contaminated; still, the region has tried to reframe itself as a tourist destination where luxuries aren’t as expensive as they could be elsewhere.
Visitors and Vacationers
People from countries with relatively higher costs of living often choose to vacation in countries like these in order to take advantage of the generally strong exchange rate and buying power, and people sometimes retire to these places on similar logic. Simply moving during working years can be a challenge unless a person has a job that can be done remotely or is independently wealthy, though, since in most cases local salaries are adjusted to the local costs of living.
Cost of Living Basics
The cost of living is how much money it takes to afford basic necessities, particularly food and shelter. Different industry groups have come up with various ways of calculating exact rankings, but in most cases the biggest factors are the costs associated with certain standard food items, like bread and milk, and the costs of renting or owning land as needed to shelter a moderate-sized family. Local currency’s purchasing power matters, as does the cost of basic services like electricity, medical care, and any taxes owed. The idea is to get a baseline figure of what it costs for a person or family to live — not necessarily for them to live in comfort or luxury, but rather for them to simply exist and have what they need for survival.
Why Some Numbers Are Low
In most cases the calculation does not consider anything about the local economy, and doesn’t usually factor in things like income potential or political stability. As a result, many of the countries considered to have a low cost of living also have relatively low standards of living, and many are quite impoverished.
Phrased differently, having a low cost of living doesn't necessarily mean that a country would be a good place to live or visit. Even those countries that are relatively peaceful often have poor infrastructure, like a lack of paved roads or regular supplies of electricity, and limited access to services including medical care. In many cases, the cost of living is low because of high unemployment and an uncertain economy.
In the West
Globally speaking, cost of living tends to be highest in Northern Europe, particularly Scandinavia, and in Japan; the United States, Canada, and Australia aren’t usually far behind. It’s important to keep in mind, though, that in many cases this high cost represents a large number of services that are available either for free or for a dramatically reduced cost. This can include social welfare services and government-sponsored benefits.
A lot also depends on precise location, too. The cost of living in the United States, for example, is lower on average than many people might expect, but many major cities, particularly New York and Los Angeles, have a very high cost of living that in some cases even outpaces European counterparts. Location is an essential part of the calculation, and average figures only say so much.