Standard Of Living vs. Quality Of Life
Standard of living and quality of life are often referred to in discussions about the economic and social well-being of countries and their residents. But what is the difference between the two? The definitions of these terms can be difficult to tease apart and may overlap in some areas, depending on whom you ask. But the difference between the two is more than just semantics; in fact, knowing the difference between the two can affect how you evaluate a country where you might be looking to invest some money.
Standard of Living
Standard of living generally refers to the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area. An evaluation of standard of living commonly includes the following factors:
• income
• quality and availability of employment
• class disparity
• poverty rate
• Quality and affordability of housing (For related reading, see Mortgages: How Much Can You Afford?)
• hours of work required to purchase necessities
• gross domestic product (GDP) (For more insight, see Don't Be Misled By Gross National Product.)
• inflation rate (See our Inflation tutorial for more.)
• number of paid vacation days per year
• affordable access to quality healthcare
• quality and availability of education
• life expectancy
• incidence of disease
• cost of goods and services
• infrastructure
• national economic growth
• economic and political stability
• political and religious freedom
• environmental quality
• climate
• safety
When you think about standard of living, you can think about things that are easy to quantify. We can measure factors like life expectancy, inflation rate and the average number of paid vacation days workers receive each year.
Standard of living is often used to compare geographic areas, such as the standard of living in the United States versus Canada, or the standard of living in Milwaukee versus New York City. If you live in a particular country, a certain number of vacation days per year will be the norm. In the United States, it's 10 to 20 days - in Denmark it's 31. Some companies within each country may be more or less generous, but one practice prevails.
Standard of living can also be used to compare distinct points in time. For example, compared to a century ago, the standard of living in the U.S. is considered to have improved greatly. The same amount of work buys a larger quantity of goods, and items that were once luxuries, such as refrigerators and automobiles, are now widely available. Also, leisure time and life expectancy have increased, and annual hours worked have decreased.
One measure of standard of living is the Human Development Index (HDI), developed in 1990 by the United Nations. It considers life expectancy at birth, adult literacy rates and per capita gross domestic product (GDP) to measure a country's level of development. (For related reading, see What is GDP and why is it so important?)
Quality of Life
Quality of life is more subjective and intangible. The United Nations' Universal Declaration of Human Rights, adopted in 1948, provides an excellent list of factors that can be considered in evaluating quality of life. It includes many things that citizens of the United States and other developed countries take for granted, but that are not available in a significant number of countries around the world. Although this declaration is 60 years old, in many ways it still represents an ideal to be achieved rather than a baseline state of affairs.
Factors that may be used to measure quality of life include the following:
• freedom from slavery and torture
• equal protection of the law
• freedom from discrimination
• freedom of movement
• freedom of residence within one's home country
• presumption of innocence unless proved guilty
• right to marry
• right to have a family
• right to be treated equally without regard to gender, race, language, religion, political beliefs, nationality, socioeconomic status and more
• right to privacy
• freedom of thought
• freedom of religion
• free choice of employment
• right to fair pay
• equal pay for equal work
• right to vote
• right to rest and leisure
• right to education
• right to human dignity
Comparing the Two
When people think about their own standard of living, the amount of money they bring in might be the first thing that comes to mind. If their income decreases (through job loss, for example), they might consider their standard of living to be decreasing along with it. Is this true? Well, consider the other factors that make up standard of living. If you have a good chance of securing another quality job because your country's economy is generally strong and the transportation infrastructure is good enough to give you a viable means of getting to that job, if you still have access to healthcare because there is a safety net for the poor (like Medicaid and sometimes state or local programs), and if the cost of goods and services is reasonable enough that you can more or less get by in the meantime until you find a new job, then your overall standard of living is still quite good despite your present lack of income. (To reduce healthcare expenditures, read Fighting The High Costs Of Healthcare and 20 Ways To Save On Medical Bills.)
Standard of living is somewhat of a flawed indicator, however. Looking at our earlier list, while the United States, for example, might be considered to rank highly in all of these areas, most people would agree that for some segments of the population, the standard of living in the United States is actually quite low. In East St. Louis, Illinois, for example, the quality and availability of employment has historically been poor, environmental quality is below average for the U.S., and the incidence of disease is high; life expectancy is also below average. According to the U.S. Census Bureau's 2000 census, the number of families living below the federal poverty level in East St. Louis was 35.1%, compared to a national average of 12.4%.
Like standard of living, what would be considered a good quality of life by one person may be considered as such by another? The earlier list of quality of life factors might also be considered to be a list of things the United States offers. The Economist, for example, produces an index that attempts to rate the quality of life in various countries. Predictably, developed nations like Norway, Australia and Luxembourg come out on top, and less-developed countries like Iraq, Afghanistan and Sudan come out on the bottom, according to the Economist's quality-of-life index. That said, there are certainly segments of the population in countries like the United States in which people don't have the right to marry whomever they choose, are discriminated against, are treated as guilty until proven innocent, do not have access to a meaningful and useful education, and/or do not get equal pay for equal work.
Conclusion
The main difference between standard of living and quality of life is that the former is more objective, while the latter is more subjective. Standard of living factors, like gross domestic product, poverty rate and environmental quality, can all be measured and defined with numbers, while quality of life factors like equal protection of the law, freedom from discrimination, and freedom of religion are more difficult to measure and are particularly qualitative. Both indicators are flawed, but they can help us get a general picture of what life is like in a particular location at a particular time.
Thursday, August 6, 2009
Few things not to do during economic melddown
In a very sluggish economy or a recession people should generally try to watch their spending and not take any undue risks that might put their future financial goals in jeopardy. There are several types of risks that everyone should avoid during a recession. Let's look at some of the most common mistakes people make and how to avoid them.
Becoming a Cosigner
Cosigning a loan can be a very risky thing to do even in flush economic times. After all, if the individual taking the loan doesn't make the scheduled payments, the cosigner could well be asked to make them.
However, during an economic downturn the risks associated with cosigning a note could be even greater as the person may be at greater risk of losing his or her job and the means to pay down the loan. Also, the cosigner is more likely to land in the unemployment line as well.
With all that in mind, there are times when you may find it necessary to cosign for a family member or close friend regardless of what's happening in the economy. In such cases, it pays to have some money set aside as a cushion. (Find out how to help the ones you love without hurting yourself; read 8 Ways To Help Family Members In Financial Trouble.)
1. Getting Into an Adjustable-Rate Mortgage
when purchasing a home, some individuals may choose to take out an adjustable rate mortgage (ARM). In some cases, this move might make sense. After all, as long as interest rates are low, the monthly payment will be low as well.
However, what if the individual were to be laid off and interest rates were to rise as the recession or slowdown started to abate? As rates rise, the monthly payment may go up. In such a case, the homeowner may find it extremely difficult to come up with the money to make the payments. Keep in mind that late payments or non-payment can have an adverse impact on the individual's credit rating, which can in turn make it more difficult for them to obtain a loan at a future date. (Do you know how your borrowing activities affect your credit rating? Find out in The Importance Of Your Credit Rating.)
2. Adding Debt
Taking on new debt (such as a car loan, home loan or similar obligation) may not be a problem in good times if the individual makes enough money to cover the monthly payments and still has extra funds to live on and to save for retirement. However, what happens if the individual's livelihood is adversely affected in the midst of the economic turmoil? What happens if the borrower is laid off?
In many cases, recently laid off individuals may have to take jobs that pay less than their previous salaries just to make ends meet and to keep money coming in the door. Unfortunately, the new income may not be anywhere near the amount they had previously earned. When this happens, savings can quickly dwindle away. (Don't let excuses prevent you from reaching your financial goals. Read Debunking 10 Budget Myths.)
In short, if you're considering adding monthly payments/debts to your financial equation, understand that this could complicate your financial situation if you are laid off or have your income cut for some reason. Taking on new debt in a recessionary environment is risky, and should be approached with caution.
Remember, over leveraging yourself at any point can lead to financial setbacks. This can prevent you from achieving your longer-term financial objectives. In a worst-case scenario, it could even contribute to bankruptcy.
3. Taking Your Job for Granted
during an economic slowdown, it's important to understand that corporations, even large ones, may be under financial pressure. And when that happens, many companies will try to reduce expenses any way they can. In some instances, that may mean scaling back on company functions such as holiday parties, but in other cases, companies may cut the dividends they pay, and sometimes companies will cut jobs as a means of saving money. (Layoff rumors can run rampant, but if your company is required to give you two months' notice, you can plan for unemployment. See Layoffs: Know The WARNing Signs.)
Job cuts are targeted by many companies that are struggling because the cost of keeping an employee on board can be huge. Think about it. Sometimes in addition to salary, the employer may also have to contribute to healthcare costs and/or make retirement contributions.
Because the employment situation during a recession may be so fragile, employees should generally try to do all they can to make sure their employer has a favorable opinion of them. This may mean coming to work early, staying late and of course doing top-notch work at all times. While there is no guarantee this will save your job, it could make you important enough to your company to ensure you're kept on the payroll. (Want to learn more about how employees lose their jobs? Check out How To Lay Off Staff.)
4. Taking Risks with Investments
Business owners should always be thinking about the future. They should always be thinking about new and exciting ways to grow their businesses. However, an economic slowdown may not be the best time to make risky bets.
For example, taking on a new loan to add physical floor space or to increase inventory, or otherwise add to the business may sound good. But what if the business was to slow down? Would the business owner or owners have enough left over at the end of the month to pay interest and principal back to the lender on time? Would they have enough left to live on? When making any sort of investment, it is important to be cognizant of the potential risks and rewards associated. This particularly true during a slowdown or a recession. (In a recession, financial industry personnel are often hit hard. Find out how to avoid getting the ax, read Top 6 Ways To Recession-Proof Your Job.)
Bottom Line
Individuals may not need to live a monk's existence during an economic slowdown, but they should pay extra attention to their spending and budgeting, and be wary of taking any unnecessary risks.
Becoming a Cosigner
Cosigning a loan can be a very risky thing to do even in flush economic times. After all, if the individual taking the loan doesn't make the scheduled payments, the cosigner could well be asked to make them.
However, during an economic downturn the risks associated with cosigning a note could be even greater as the person may be at greater risk of losing his or her job and the means to pay down the loan. Also, the cosigner is more likely to land in the unemployment line as well.
With all that in mind, there are times when you may find it necessary to cosign for a family member or close friend regardless of what's happening in the economy. In such cases, it pays to have some money set aside as a cushion. (Find out how to help the ones you love without hurting yourself; read 8 Ways To Help Family Members In Financial Trouble.)
1. Getting Into an Adjustable-Rate Mortgage
when purchasing a home, some individuals may choose to take out an adjustable rate mortgage (ARM). In some cases, this move might make sense. After all, as long as interest rates are low, the monthly payment will be low as well.
However, what if the individual were to be laid off and interest rates were to rise as the recession or slowdown started to abate? As rates rise, the monthly payment may go up. In such a case, the homeowner may find it extremely difficult to come up with the money to make the payments. Keep in mind that late payments or non-payment can have an adverse impact on the individual's credit rating, which can in turn make it more difficult for them to obtain a loan at a future date. (Do you know how your borrowing activities affect your credit rating? Find out in The Importance Of Your Credit Rating.)
2. Adding Debt
Taking on new debt (such as a car loan, home loan or similar obligation) may not be a problem in good times if the individual makes enough money to cover the monthly payments and still has extra funds to live on and to save for retirement. However, what happens if the individual's livelihood is adversely affected in the midst of the economic turmoil? What happens if the borrower is laid off?
In many cases, recently laid off individuals may have to take jobs that pay less than their previous salaries just to make ends meet and to keep money coming in the door. Unfortunately, the new income may not be anywhere near the amount they had previously earned. When this happens, savings can quickly dwindle away. (Don't let excuses prevent you from reaching your financial goals. Read Debunking 10 Budget Myths.)
In short, if you're considering adding monthly payments/debts to your financial equation, understand that this could complicate your financial situation if you are laid off or have your income cut for some reason. Taking on new debt in a recessionary environment is risky, and should be approached with caution.
Remember, over leveraging yourself at any point can lead to financial setbacks. This can prevent you from achieving your longer-term financial objectives. In a worst-case scenario, it could even contribute to bankruptcy.
3. Taking Your Job for Granted
during an economic slowdown, it's important to understand that corporations, even large ones, may be under financial pressure. And when that happens, many companies will try to reduce expenses any way they can. In some instances, that may mean scaling back on company functions such as holiday parties, but in other cases, companies may cut the dividends they pay, and sometimes companies will cut jobs as a means of saving money. (Layoff rumors can run rampant, but if your company is required to give you two months' notice, you can plan for unemployment. See Layoffs: Know The WARNing Signs.)
Job cuts are targeted by many companies that are struggling because the cost of keeping an employee on board can be huge. Think about it. Sometimes in addition to salary, the employer may also have to contribute to healthcare costs and/or make retirement contributions.
Because the employment situation during a recession may be so fragile, employees should generally try to do all they can to make sure their employer has a favorable opinion of them. This may mean coming to work early, staying late and of course doing top-notch work at all times. While there is no guarantee this will save your job, it could make you important enough to your company to ensure you're kept on the payroll. (Want to learn more about how employees lose their jobs? Check out How To Lay Off Staff.)
4. Taking Risks with Investments
Business owners should always be thinking about the future. They should always be thinking about new and exciting ways to grow their businesses. However, an economic slowdown may not be the best time to make risky bets.
For example, taking on a new loan to add physical floor space or to increase inventory, or otherwise add to the business may sound good. But what if the business was to slow down? Would the business owner or owners have enough left over at the end of the month to pay interest and principal back to the lender on time? Would they have enough left to live on? When making any sort of investment, it is important to be cognizant of the potential risks and rewards associated. This particularly true during a slowdown or a recession. (In a recession, financial industry personnel are often hit hard. Find out how to avoid getting the ax, read Top 6 Ways To Recession-Proof Your Job.)
Bottom Line
Individuals may not need to live a monk's existence during an economic slowdown, but they should pay extra attention to their spending and budgeting, and be wary of taking any unnecessary risks.
Subscribe to:
Posts (Atom)