I was fortunate enough to share a cigar with a wonderful fella over the weekend, an American who was visiting Malaysia for some business. As we bonded through the Brotherhood of the Leaf (yes, it sounds corny, but we cigar aficionados are a close knit bunch -- anyone who loves a good cigar is my "brother" and vice versa), we were discussing the prices of cigars in the US and in Malaysia.
Me: American per capita income is around US$26k per annum. The average per capita income of Malaysians is just about US$4k. Our PPP (Purchasing Power Parity) is more or less equal -- therefore, cigars should be damn cheap for you. A good cigar in the US is perhaps US$10 per stick, in Malaysia we would have to pay RM40 for the same cigar -- its a much bigger chunk of our income.
Him: If you play it as a numbers game, you're right. But in reality you're wrong. The average American has no money. Hell, most of them couldn't survive a month without a job. The average savings rate of Americans is -3%! (Compared to the average savings rate of Asians which generally hovers around 15-30% of their income).
Me: *Astounded* But, but...
Him: No its true. We should be teaching our young to develop saving habits, but we don't. Therefore, they grow up always seeking instant gratification for everything. They want to eat in expensive places, they want to buy that brand new car (US$15k and above) when a 2nd hand car (less than US$3k) will do. And even young kids are doing this. Sometimes, they will get trapped in a cycle of debt that they never recover from the rest of their lives.
Me: How? They don't have any income yet.
Him: Credit cards. Credit card companies push their cards to college students, "Hey, take this US$5k credit-limit card and be happy." College kids are mostly dumb and take it -- the average American female has multiple credit cards by the time she graduates from college. And the interest rates are usurious -- 18-24% per annum. Let me ask you: if you're servicing 5-6 cards a month, all of them maxed out, using some cards to pay for the bills of other cards. Paying those interest rates, would you have any money left to save?
Me: *speechless, furiously puffing on my cigar* I didn't know it was that bad...
Him: Its worse.
Lesson learned: Save more, spend less.
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