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This solves Postgresql's encoding issue (happened to me when running postgres on my vagrant box) The error happens when trying to create db "rake db:create": Error message: "encoding UTF8 does not match locale en_US; the chosen LC_CTYPE setting requires encoding LATIN1"
sudo su postgres
psql
update pg_database set datistemplate=false where datname='template1';
drop database Template1;
create database template1 with owner=postgres encoding='UTF-8' lc_collate='en_US.utf8' lc_ctype='en_US.utf8' template template0;
update pg_database set datistemplate=true where datname='template1';
\q
exit
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