Why we underestimate saving

From the Wall Street Journal:

In a recent study, marketing professors Eric Eisenstein and Stephen Hoch found that most folks underestimated how much savings would grow and how much debt would end up costing.

The problem: People think in terms of simple interest, not compound interest. For instance, if our investments clock 8% a year for 10 years, we don't earn 80%, as many people assume.

Rather, we would notch a cumulative 116%. Remember, we earn returns not only on our original investment, but also on the investment gains earned in earlier years. Similarly, with credit-card debt, we pay interest both on our original purchases and on any monthly interest charges we didn't pay off in full.