Save, save, save!

From the Economist:

Lesson one: the secret to becoming a millionaire. Answer: save, save, save.

It is interesting to read this article. It tells us that how many of us actually know nothing about finance. Finance is not something easy, as I observed in many of my friends, they simply are not interested, shy away from it, and take not much effort in managing their money, and take no effort to learn more about it. True, it was not the phenomenon seen only in US, it is all over the world. Is this what causes today’s problem in the world of finance? Possibly.

It is true that education in most part of the world has taken no effort in teaching personal finance to students at all level, however, it is also remarkable to see how Chinese people save. From those old saying from out older generation, we are taught to save, save, and save. It is thus no wonder that saving rates in places like China and Hong Kong are so high. In contrast, our counterpart in US seems to save far too little (or English-speaking world, as said in this article):

It is a “well-established fact” that “a substantial proportion of the general public in the English-speaking world is ignorant of finance,” writes Niall Ferguson, an historian at Harvard University, in his forthcoming book about the history of finance, “The Ascent of Money”. He produces a long list of evidence to support this conclusion. According to one survey last year, four in ten American credit-card holders do not pay the full amount due every month on the credit card they use most often, despite the punitive interest rates charged by credit-card companies. Nearly one-third said they had no idea what the interest rate on their credit card was.

Truth to be, I know no people around me who do not pay full amount of the credit card. With a high saving rate, we thus have enough capital to fund investment by the fund we have locally. In contrast, US essentially has to borrow from foreigners. Perhaps it is why European banks suffered so much in the subprime mortgage crisis too, because they effective lend their money to subprime borrowers.

It is also no wonder that US has been running trade deficit for so many years, because of low saving rate in the private sector, and large government deficit.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.