Americans are financially illiterate

I hate to be rude to my hosts. But a survey released by Harvard Business School and Dartmouth (synopsized on CNN's website) shows that Americans don't understand the mechanics of debt. Shown a hypothetical scenario about credit card debt, 36% couldn't figure out how long it would take their debt to double. 32% overestimated the time frame. 18% didn't know how to respond. The survey also revealed that Americans aren't saving enough for retirement.

In a country where debt is very easily available, this is very dangerous.

A good estimator, by the way, is the rule of 72. Divide 72 by the interest rate you are paying, or the rate at which you expect your investment to compound. The result is the number of years it takes your debt or investment to double. If you are earning 8% above the rate of inflation annually (that's a rather high rate of return for a portfolio that isn't all stocks), your investment's purchasing power will double in about 9 years. If you are paying 24% on your credit card, which isn't out of line these days, your debt will double in 3 years if you don't pay anything back.

In Singapore, you need to make about US$20,000 a year (at current exchange rates) before a bank can legally issue you a credit card. That means that students can't get credit cards. Younger workers also tend to stay with their parents, since housing is at a premium. Tempers may flare, but they save money. Singaporeans are probably about as financially illiterate as Americans, but it's also harder for them to get credit cards.