Americans and Europeans are subject to very different fiscal regimes, but which is more cost-effective? Overall, Europe often has lower costs when measured against the United States. But these financial benefits should be weighed carefully against factors such as location, income levels, and monetary and economic conditions.
If you live in Europe, you may undertake considerable transatlantic travel, which involves costly time and financial commitments. Making such a move worthwhile takes good financial sense and planning.
Key Takeaways
- Overall, Europe has a lower cost of living due to lower healthcare expenses, a weakening euro currency, and low inflation.
- Europeans, however, tend to pay more of their income to taxes, and average wages tend to be lower than in America.
- Most European countries offer free healthcare for residents, which represents a huge saving.
Understanding Municipalities
Where a person lives in the United States and Europe makes a difference to the cost of living, and since residential expenses are among the largest for most households, locality is probably the most 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 show southern Europe to be less expensive than many northern European destinations.
Currency
Currency values and local pricing also influence costs. The Big Mac Index is an informal metric used to compare the purchasing power between currencies as compared to the price of a McDonald's Big Mac. 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
Taxes are higher in Europe and include a value-added tax (VAT) that can be upwards of 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 United States. Even with VAT, many European goods and services are still less expensive than the same or similar items in the United States.
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 from 40% to over 55% in France, Germany, and Spain, after-tax income for higher-earning Americans is higher.
Products
Even though the cost of living in most of Europe is lower than in the United States, 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 data from the International Monetary Fund (IMF), the EU's inflation rate is expected to remain between 1.4% to 1.9% from 2021 through 2026, while the U.S. inflation rate is expected to remain between 2.2% and 2.5% for the same period.
Seasons
The time of year also influences the cost of goods and services in specific locations within the United States 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.
Healthcare
One of the biggest savings in the cost of living is that most European countries offer completely subsidized, free healthcare for residents. This means no health insurance premiums, deductibles, or co-pays. While some have argued that socializing healthcare reduces quality, there is evidence that healthcare services in Europe achieve better outcomes, including higher life expectancies, than in the United States.