Some things are basic to life…like:

– it is better to be a LENDER than to be a BORROWER.

– pay off the MORE expensive loans first

– if you MUST have debt, it is better to have a tax deductible debt

– your credit rating determines your interest payment

– the more number of times your credit history is sought, you pay a higher price for it

well the Americans do not understand this. No, not me saying is the honorable CFA institute saying this… read on…

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  1. I don’t think it could be any other way. If the common man understood how the credit ratings are done, then he may do things to game them. A situation where the prey is hapless and in the dark is most advantageous to the predator.
    Isn’t that also the reason we have paper money (now increasingly electronic) along with other paraphernalia like taxes, bonds, stocks, insurance, deficits, inflation, deflation (!!) etc.? Same idea here too…keep the average productive individual in the dark as to what exactly he’s earned for his efforts, how much should he spend or save, whether his savings are at risk (of direct loss or thru inflation). This allows people currently in power to consolidate their power and continue to keep average people under their thumb.
    This is like jungle rule…acquire some territory (resources/wealth) by some means (straight or crooked), then use all means to retain/expand it. If civil rules such as rule of law or rule of merit prevails, then people currently in power may lose it to incumbents…and that must be prevented at all costs…even at the cost of untold misery to millions of citizens. ‘Jiski lathi uski Bhains’…so keep your lathi tagdi and don’t lose it!

  2. Average American’s financial literacy is no better than a comparable Indian. Indian score better because of our traditional value system of thrift.

    It is amazing to see how many credit cards American carry. When you stand in line behind an American at the store register, you can see wallet full of cards.

    Stores like Macy’s offer 20% off on entire days purchase when you apply for their credit card. It’s good marketing trick. If you tell them that you already have a card, they will suggest opening another one on your wife’s name.

    The amount of shopping people do is also amazing. I have seen folks buying give pairs of jeans. Why anyone in the world needs 5 pairs of jeans.

    No wonder america’s saving rate is so low.

  3. mrhdk – india’s saving rate is also mythical. i really really doubt our savings are high. most people live hand to mouth and retirment planning is left to -bachcha bharose.

    the reason india’s ‘savings rate’ is high is because of fractional reserves and tremendous deficit financing by the govt.the total savings of india is mostly seen in terms of bank deposits in state owned banks.most of this money is govt debt recycled and reloaned 9-9.5 times.

  4. The saving rate numbers are from various agencies like World Bank, Financial Times Research, etc. We need to believe some numbers.

    Also look at families around us. Barring the urban youngsters below 30-35, for all other age groups saving rates in Indian families are pretty good. We need to look at aggregate data and not few examples.

    Look at the average age of folks buying houses in India. Due to cash component, etc, they contribute out 25-30 % as down payment. Again don’t look at stray cases. HDFC’s loan to value ratio will corroborate this. This itself will give good indication of India’s saving rate. If you compare that with American couple in that age group buying their first house, very rarely they will bring 20% of down payment. Mostly they bring bare minimum 5%.

    In India you will see folks reaching 40 buying their second house, plot of land or some investment property. In America it is very very rare. You will come across very few people who have investment properties. You can ask your NRI friends how many of them have investment properties. All these answers will give you idea about saving rates on America.

    Higher standards of living does not necessarily mean higher networth. That is exactly what has happened to USA.

  5. Mrhdk

    You don’t need to see an american to observe the same things.

    Here is Gurgaon malls I see exactly same thing done by some privileged Indians.

    They shop as if there is no tomorrow, have seen people buying clothes like vegetables from Sabji Mandi.

  6. “we need to believe some numbers”. are you kidding me? appealing to higher authority especially babu economists?
    how about questioning their methodology.that is what good analysis is supposed to do.

  7. also you are comparing the cream of india ..the 0.01% people who buy 2 houses with the average american. it is a common fallacy. people comparing IITians and top schools to average american school and reporting that indian schooling is wonderful

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