Here’s an article that is making my day: People flunked this money test because the questions were dumb.

But let’s backtrack a second to McGraw Hill, the World Bank and Standard & Poors, who posed five questions in a financial literacy survey to 150,000 people in more than 140 countries. You had to get three of the questions right in order to demonstrate financial literacy.

The big drama: only about a third of people were able to do that.

I answered the questions on this Quartz article. Here they are, with some comments on the crazier questions:

Screen Shot 2015-11-24 at 5.59.43 AM
Oh yes… That’s what all the people in India are doing. They’re taking their spare rupees and tossing them into single stocks on the stock market. Not. Also – if you’re entrepreneurial, isn’t it more sensible to put money into your own business as stock?
Screen Shot 2015-11-24 at 6.01.03 AM
Mmmm – because everyone in the world uses banks, amirite?
Screen Shot 2015-11-24 at 6.00.39 AM
Mmm – same question about banks…

Screen Shot 2015-11-24 at 6.00.22 AM

Screen Shot 2015-11-24 at 6.01.28 AM
Seriously, about those banks.

Here’s a sample of Felix Salmon’s derision from that making-my-day article:

This is completely bonkers: Nothing useful can be learned by going up to poor workers in, say, Afghanistan (to take the very first country on the list), and asking them this question. They don’t have banks, and if they do have banks they don’t have savings accounts, and if they do have savings accounts they don’t hold on to them for five years, and if they do hold on to them for five years they’ll probably end up with nothing at all, since the bank will probably have been looted, or gone bust, or else they will have no way of proving their ownership of the account. On top of that, there’s no reason to believe that they have any idea what “10 percent” means, because that’s a mathematical concept they are very unlikely to have been taught at school.

Afghans, like everybody else, can be very smart and shrewd about their finances, and, like everybody else, sometimes they can be stupid too. But if they’re smart, and they’re faced with a question like this one, the only sensible response is some kind of WTF eyeroll.

The only other thing that I wanted to say is that the poor are often capable of generating returns that are absolutely astronomical by normal investment return standards.

Consider this:

  1. A poor Indian mother has no money.
  2. So she borrows, say, $5 to be repaid by the end of the day.
  3. It has to be repaid at $6 including interest.
  4. By the end of most days, she has enough money to cover her family’s food (let’s say that she spends $3 on food).
  5. She repays her loan with interest.
  6. The next day, she starts again with no money.

So: she has to make $4 a day in margin ($3 for food, $1 for interest) off $5 in borrowed money (and her own sweat).

That is a Return on Investment of 80% – in a day.

Sure, in absolute terms, it’s not very much at all. But almost no company can claim to be making that kind of ROI.

I realise that there are some flaws in that calculation, but I did a more expanded version of that in this post: “How can I spend my $35 to get the best return on investment?” And the point is: that is financial literacy – it just might not be the kind of financial literacy that the rich use in their day-to-day financial decision-making.

And, I guess, the rich have that kind of financial literacy because they are rich – and they are not rich simply because they have that kind of financial literacy.

If you want to see more of the results, here’s a youtube clip.

Happy Tuesday.

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at Or both.