Chapter 619: Compound Interest

Yamada Mirai walked in with a cell phone in her hand and stood behind Masayoshi Kishimoto, speaking at a normal pace, “A call came from the Japanese Embassy in Seoul, Korea. If the chairman needs it, they can provide you with the necessary assistance and consular protection.”

Masayoshi Kishimoto’s first reaction was to think of Mark Twain’s A Million Pounds which had a similar scene inside his head.

He crossed his arms in front of his chest, turned his back, and smiled, “If I were just an ordinary Japanese, would they still be so attentive?”

“It is precisely because the Chairman is not an ordinary Japanese national that he has received special care. Your well-being is not only related to Japan’s economy, but also the livelihood of tens of thousands of people.” Yamada Mirai said bluntly.

“I am just a mortal, not as important as you make me out to be.” Masayoshi Kishimoto said without changing his smile.

“Chairman, you are really too modest. The second thing is that Korea’s KBS TV wants to do a character interview with you. Is there a rebuff on that?” Yamada Mirai said seriously.

“Nowadays, I’m a Japanese who is least popular with some Koreans. Let’s not accept their character interview! So as not to give that part of the population even more trouble.”

Masayoshi Kishimoto on the one hand didn’t like being interviewed, and on the other hand was already sharpening his knife on the pigs and goats himself. Of course he was going to go after the Korean economy and do a ransacking. The knife in his hand was hungry and thirsty, and once it was raised high, he was definitely going to carry out a big slaughter.

“Understood.” Yamada Mirai said with complete understanding of the chairman’s meaning.

“Do you use a credit card?” Masayoshi Kishimoto wasn’t aimless, but asked with a purpose.

Yamada Mirai replied succinctly, “Use it.”

“That means you’re not only in the minority, but you’re also quite fashionable. Tell me about the benefits and drawbacks of credit cards?”

Masayoshi Kishimoto had known for a long time that the personal usage rate of credit cards among the Japanese was only 7%, while the personal usage rate of credit cards among the Koreans was already as high as 69% at this time.

The reason for the current situation is due to the encouragement of the Korean government and the Bank of Korea.After the Asian financial crisis in 1997, the Korean government launched a series of policies to encourage the development of the credit card industry since 1999 in order to expand domestic demand and stimulate the economy.

For example, the 700,000 won limit on cash advances was repealed, and the restriction that cash advances (cash advances and credit card advances) account for no more than 50% of credit card receivables was lifted;

Allowing the amount of credit card expenditures to exceed 10% of one’s income, 10% of which can be used as an income tax deduction up to a maximum of KRW 300 million;

In 2001, this deduction rate was raised to 20% and 5 million won, respectively; since 2000, receipts for credit card purchases of 10,000 won or more can be redeemed for prizes up to a maximum of 100 million won in cash, and so on.

For merchants, Korea has also taken measures to require them to accept credit card transactions, for example, merchants can participate in prizes up to a maximum of 20 million won, and merchants can deduct business value-added tax (BVAT) of 2% of the transaction amount up to a maximum of 5 million won;

Merchants with annual sales of 24 million won or more are required to accept credit card transactions or face up to one year in prison or a fine of up to 10 million won.

Credit card companies, on the other hand, took advantage of the policy to encourage the indiscriminate issuance of credit cards, and expanded their operations by developing a large number of members. Undue competition began to emerge in the market, resulting in consumers using credit cards indiscriminately to overspend and incurring serious debts, and the industry experienced “credit card fever”.

Unlike Japan, Koreans use credit cards directly on subways and buses, not IC cards.

Even students with unstable or no income are able to get a credit card. In terms of the number of credit cards issued in Korea, the average number of credit cards per Korean is 2.5.

In fact, excluding small children and conservative people, every Korean has at least 4 or 5 credit cards.

In fact, the average number of credit cards for young people is as high as seven or eight, and many even have as many as a dozen credit cards.

Why are banks so keen to issue credit cards? Actually, the reason is very simple, and that lies in the fact that the profit margin is huge. Do you think they do not know that there will be a situation of tearing down the east wall, mending the west wall, card to card?

They’ve been expecting a lot of people to do this for a long time, and they’re not happy about it. Interest, late fees, charges, etc., annual interest is at least ten percent a year, and generally in the twenties and thirties.

Of course, the bank would never say that.

They’ll change it to say that the interest rate is as low as five ten thousandths of a percent per day. A casual, rough calculation of 0.05% (5/10,000ths) * 365 days = 18.25%. In fact, this is a simple interest calculation.

This is not how compound interest is calculated, also known as interest rolling, snowballing. The formula is F=P(1+i )^n. In addition to this, there is an even more incomprehensible formula for calculating interest, PV*(1+r/n)^n=FV.

Masayoshi Kishimoto remembers vividly his previous life when he was in college, the first class in which he studied Fundamentals of Accounting was about compound interest.

When the university lecturer talked about this one, his greatest sentiment was that compound interest calculation was one of the greatest inventions of mankind. In his opinion, he didn’t know what asshole had invented such a pitiful thing.

As for loan sharks, they use compound interest calculation in an even more bastardized way. They used a concept called equal debt service.

It’s twisted by them on purpose. As a random example, borrowing $24,000 for one year at 2% monthly interest fee, 24,000/12 + 24,000*2% = 2,000 + 480 = 2,480.

A whole year down the total, 29,760 yuan. Deduct the principal of 24000, 5760 yuan of interest, 24% annual interest. But that’s not how the math works.

Their algorithm would be month 0, you get $24,000 and owe $24,000 on the principal.

Month 1, you paid back $2,000 + 2% interest on $24,000 and still owe $22,000 on the principal.

In month 2, you paid back $2,000 + 2% interest on the $24,000 and still owe $20,000 on the principal.

In month 3, you paid back $2,000 + 2% interest on $24,000 and still owe $18,000 on the principal.

…… month 12, you paid back $2,000 + 2% interest on $24,000 and still owe $2,000 principal terminated in that month.

One problem lies in the fact that instead of using the $24,000 for one year and paying it off in one lump sum, you made installments. Each installment is accruing interest on the $24,000 principal.

Even if you get to the last 12 months and only have $2,000 of principal left, you’re still paying $480 per month on the $24,000 principal.

To put it another way, you borrowed $2,000 but are paying back the interest on the $24,000 principal instead of the $2,000 interest.

The correct way to open it up would be that month 1 is fine at 2% interest on the $2,000 + $24,000 you paid back.

Starting month 2, you should be having to follow the 2% interest on $2,000 + $22,000 dollars.

Starting the 3rd month, you should be having to pay 2% interest on $2,000 + $20,000 dollars.

…… Starting the 12th month, you are supposed to be paying 2% interest on $2,000 + $2,000.

That means instead of a $24,000 a year loan usage figure, you’re looking at $13,000 a year. ($24,000 + $22,000 + $20,000 ……+2000)/12 = $13,000.

Meaning just for $13,000 you paid $24,000 annual interest at 24%. The true interest cost of the loan is $5,760 divided by $13,000, which is 44.3% per annum, not the so-called 24%, which is nearly double the interest rate.

In actuality, a loan shark’s 2% monthly interest rate is already on the low end of the scale. This is not even counting what is completely fraudulent loan sharks and other crap.