…gists call “exponential-growth bias,” the tendency to underestimate the magic of compound interest. Researchers have found that people don’t understand how dramatically the value of small savings balances can grow over long periods of time, thanks to compounding.
I just wrote a piece about debt-burdened households. While I take a different tack and focus on those who simply can’t afford to save, your points are important too: people have higher expenses, people simply don’t know how important saving is, and as I note in my article, sometimes skipping the Starbucks isn’t worth it. To your point about not understanding compounding: I went to two high schools and neither had a financial literacy course. While I learned a lot from my parents, other kids likely didn’t. I think the whole situation is a mess of poor education, misconceptions about money, and wage growth that didn’t keep up with costs of living. Great piece; I enjoyed reading it after being steeped in this topic for awhile!