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According to a recent n=150,000 global survey by Gallup and S&P, there is an astounding lack of financial literacy in the world.
To gauge financial literacy, they asked a series of four questions on basic financial concepts such as risk diversification, inflation, simple interest, and compound interest. They were very simple and typically only had 2-3 possible answers. Here is the most “difficult” question:
Suppose you had 100 US dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account?
The possible answers were:
[more than 150 dollars; exactly 150 dollars; less than 150 dollars; don’t know;
refused to answer]
Demonstrating understanding in three out of the four areas qualified you as financially literate. Only a third of the world’s population reached that threshold, rising to a modest 53% in the advanced OECD countries.
One surprising pattern is that there was very little variation in financial literacy between low-income and middle-income countries; there was only a sustained increase once countries began to exceed the $12,000 GDP per capita mark. Presumably, that is approximately the point when people start doing things like getting credit cards and taking out mortgages, so they are forced to come to grips with concepts like compound interest whether they like it or not. But there are plenty of both negative outliers (e.g. Japan, Korea, Italy, Portugal), as well as a few positive ones (e.g. Bhutan, Myanmar, Botswana).
Curiously, the correlation between financial literacy and cognitive ability appears to be surprisingly low. In other words, basic financial literacy has a low g loading.
There is a relationship to be sure, but exceptions abound, even in the rich country list. High IQ Japan, Korea, and China do a lot worse than one might expect. Botswana and South Africa do much better than what their national IQ levels might imply; in fact, South Africa is the highest-scoring of the BRICS countries.
Although conventional coverage of the national differences in financial literacy highlighted in this report by mainstream journalists like Leonid Bershidsky predictably focus on things like education levels and exposure to financial services, the really big explanatatory factor seems to be religious/cultural.
On the global scale, the Protestant world comprise nine of the world’s top 10 most financially literate countries, and an amazing 17 of the world’s top 25 – which is also a convenient threshold representing 50%+ financial literacy. (By which point the stock of both developed world Protestant countries pretty much ends). The world’s offshore bank, Switzerland, is a relatively disappointing 15th.
9 of the top 10 countries are within the Hajnal line of Europe, or are their descendants; and 17 of the top 25.
Predictably, the non-Protestant exception in the top 10 is Israel. The Jews can sure count their shekels.
Another correlation that seems to exist is with time preference. Countries where people displayed a willingness to wait to get a greater sum of money in one month’s time, as opposed to getting a smaller sum right now (inflation-adjusted), also tended to perform much better on financial literacy metrics.
The Catholics and Orthodox Christians tended to do a lot worse, even though as we know IQ differences between them and the Protestant world are fairly minor. Likewise with the Confucian civilization.
This suggests that Protestant populations have tended to culturally evolve (or gene-culturally evolve) an “intuitive” understanding of finance like things, while the rest of the world pretty much has to figure it out from zero. More intelligent populations with financial experience, such as the Japanese, tend to be relatively better at it (43% financially literate); less intelligent populations without much financial experience, such as the Indians and Iranians, do much worse at it (<25% financially literate).
Still, there remain some curious cases nonetheless. How does dirt poor and only 60% literate Bhutan manage to take 20th place, with 54% financial literacy? Myanmar also does surprisingly well for a country of its socio-economic and hisorical profile, taking up the 24th slot. Both are Buddhist, but otherwise, Buddhists do not appear to perform especially well; Cambodia is one of the worst, while Thailand is middling between Myanmar and Cambodia. Nor does it appear to have anything to do with the particular sect of Buddhism: Bhutan follows Vajrayana Buddhism, while Myanmar follows Theravada.
Financial Literacy 2015 via S&P/Gallup
| # | Country | % Financial Literacy |
| 1 | Norway | 71.3% |
| 2 | Denmark | 71.3% |
| 3 | Sweden | 71.2% |
| 4 | Israel | 68.4% |
| 5 | Canada | 68.3% |
| 6 | United Kingdom | 67.1% |
| 7 | Netherlands | 66.1% |
| 8 | Germany | 65.7% |
| 9 | Australia | 63.7% |
| 10 | Finland | 62.9% |
| 11 | New Zealand | 61.5% |
| 12 | Singapore | 59.4% |
| 13 | Czech Republic | 58.4% |
| 14 | United States | 57.4% |
| 15 | Switzerland | 57.1% |
| 16 | Belgium | 55.3% |
| 17 | Ireland | 55.1% |
| 18 | Estonia | 54.4% |
| 19 | Hungary | 54.2% |
| 20 | Bhutan | 53.7% |
| 21 | Luxembourg | 53.2% |
| 22 | Austria | 53.0% |
| 23 | Botswana | 52.2% |
| 24 | Myanmar | 51.8% |
| 25 | France | 51.7% |
| 26 | Spain | 49.1% |
| 27 | Latvia | 48.3% |
| 28 | Montenegro | 48.2% |
| 29 | Slovak Republic | 48.1% |
| 30 | Greece | 45.0% |
| 31 | Uruguay | 44.8% |
| 32 | Tunisia | 44.7% |
| 33 | Lebanon | 44.4% |
| 34 | Malta | 44.2% |
| 35 | Croatia | 44.1% |
| 36 | Slovenia | 44.0% |
| 37 | Kuwait | 43.5% |
| 38 | Japan | 43.0% |
| 39 | Hong Kong SAR, China | 42.7% |
| 40 | Poland | 42.4% |
| 41 | South Africa | 41.7% |
| 42 | Turkmenistan | 41.1% |
| 43 | Mongolia | 40.7% |
| 44 | Chile | 40.7% |
| 45 | Zimbabwe | 40.6% |
| 46 | Zambia | 40.4% |
| 47 | Tanzania | 40.3% |
| 48 | Ukraine | 40.0% |
| 49 | Kazakhstan | 39.7% |
| 50 | Senegal | 39.7% |
| 51 | Bahrain | 39.5% |
| 52 | Lithuania | 38.7% |
| 53 | Mauritius | 38.7% |
| 54 | United Arab Emirates | 38.3% |
| 55 | Russian Federation | 38.1% |
| 56 | Kenya | 38.0% |
| 57 | Serbia | 38.0% |
| 58 | Togo | 38.0% |
| 59 | Madagascar | 37.7% |
| 60 | Cameroon | 37.7% |
| 61 | Belarus | 37.5% |
| 62 | Benin | 37.0% |
| 63 | Italy | 36.9% |
| 64 | Taiwan, China | 36.9% |
| 65 | Azerbaijan | 36.3% |
| 66 | Malaysia | 35.7% |
| 67 | Sri Lanka | 35.4% |
| 68 | Dominican Republic | 35.4% |
| 69 | Costa Rica | 35.1% |
| 70 | Malawi | 35.1% |
| 71 | Gabon | 34.8% |
| 72 | Bulgaria | 34.7% |
| 73 | Côte d’Ivoire | 34.7% |
| 74 | Brazil | 34.7% |
| 75 | Cyprus | 34.6% |
| 76 | Uganda | 34.2% |
| 77 | Korea, Rep. | 33.4% |
| 78 | Mali | 33.4% |
| 79 | Mauritania | 33.3% |
| 80 | Algeria | 33.0% |
| 81 | Jamaica | 32.9% |
| 82 | Burkina Faso | 32.8% |
| 83 | Belize | 32.6% |
| 84 | Colombia | 32.2% |
| 85 | Indonesia | 32.2% |
| 86 | Puerto Rico | 32.2% |
| 87 | Ethiopia | 32.1% |
| 88 | Congo, Dem. Rep. | 31.9% |
| 89 | Mexico | 31.6% |
| 90 | Ghana | 31.5% |
| 91 | Niger | 31.5% |
| 92 | Saudi Arabia | 31.3% |
| 93 | Congo, Rep. | 31.0% |
| 94 | Guinea | 30.4% |
| 95 | Ecuador | 30.3% |
| 96 | Georgia | 29.7% |
| 97 | China | 28.1% |
| 98 | China | 28.1% |
| 99 | Argentina | 28.0% |
| 100 | Peru | 27.6% |
| 101 | Egypt, Arab Rep. | 27.5% |
| 102 | Thailand | 27.4% |
| 103 | Moldova | 27.4% |
| 104 | Bosnia and Herzegovina | 27.2% |
| 105 | Iraq | 27.2% |
| 106 | Namibia | 26.7% |
| 107 | Panama | 26.5% |
| 108 | Pakistan | 26.3% |
| 109 | Chad | 26.2% |
| 110 | Nigeria | 26.1% |
| 111 | Portugal | 26.0% |
| 112 | Rwanda | 25.8% |
| 113 | Guatemala | 25.7% |
| 114 | Venezuela, RB | 25.1% |
| 115 | Philippines | 25.0% |
| 116 | West Bank and Gaza | 24.6% |
| 117 | Burundi | 24.4% |
| 118 | Vietnam | 24.4% |
| 119 | Bolivia | 24.4% |
| 120 | Turkey | 23.6% |
| 121 | India | 23.6% |
| 122 | Jordan | 23.6% |
| 123 | Honduras | 22.9% |
| 124 | Romania | 21.7% |
| 125 | Macedonia, FYR | 21.5% |
| 126 | Uzbekistan | 21.4% |
| 127 | El Salvador | 21.1% |
| 128 | Sierra Leone | 21.0% |
| 129 | Sudan | 20.7% |
| 130 | Iran, Islamic Rep. | 20.5% |
| 131 | Kosovo | 19.9% |
| 132 | Nicaragua | 19.8% |
| 133 | Bangladesh | 19.2% |
| 134 | Kyrgyz Republic | 18.9% |
| 135 | Cambodia | 18.4% |
| 136 | Nepal | 18.3% |
| 137 | Armenia | 18.2% |
| 138 | Haiti | 17.9% |
| 139 | Tajikistan | 16.9% |
| 140 | Angola | 15.3% |
| 141 | Somalia | 15.2% |
| 142 | Afghanistan | 14.1% |
| 143 | Albania | 13.8% |
| 144 | Yemen, Rep. | 13.3% |
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Sampling in poor countries is so inadequate that 90% of the results of such surveys are nonsense.
If the Protestant nations did the best, the Hindu nations (India and Nepal) did the worst. That seems to be the only correlation.
What also stands out is Subsaharan Africa doing much better than the Indian Subcontinent and West Asia. And Bhutan, Botswana and Burma doing better than China, Japan and Russia.
What also stands out is Subsaharan Africa doing much better than the Indian Subcontinent and West Asia. And Bhutan, Botswana and Burma doing better than China, Japan and Russia.Replies: @5371
And right on schedule, you swallow all the nonsense like mother’s milk.
Looks to me there is a hole in your argument.
A country like Iran, or any of the middle eastern countries don’t have experience with commerce?
Really? I mean the homes of the trade caravan, the bazaar, the Satrap’s Court, trading ships even…
Just saying trade goes WAY back in this neck of the woods.
Of course a certain religion has a problem with interest on loans. But that religion would have found it necessary to have that problem circa 700 AD then right?
Anyway. This was such a cool, interesting part of the world till that monster/abomination religion came along and turned everything into crap.
I’d like to turn back the clock; Zoraoasterism in Persia, the Byzantines back big in Turkey, animists and funky people in the Balkans…
And Isis, Marduk, and the Temple of Sin back in Babylon.
Actually we are going to have to move Baghdad about a 100 miles and rename it. And those Shias are gonna sh*t when they see the new order. Shame Hussein is gone, that’s one man who would have gotten my vision and been on board.
Then we’ll have cat worshipers and 220 million gods in Egypt (trust me this place gave India a run for it’s money)…
A man can dream. Of course in my fantasy middle east you’d find Christianity in only one place, Byzantium. I’m totally cool with Judaism being in Israel though.
Here's my own hypothesis regarding religion and finance: Historically, both Islam and the Catholic Church forbid usury; the Jews and Protestants, in general, did not. It makes perfect sense then that the latter would have a greater cultural affinity for finance than the former.
Anatoly, didn't the Orthodox Church also ban usury?
Regarding the Buddhists, Confucians, Animists, etc., I have no general hypothesis to offer.Replies: @Hibernian
The only results from poor countries to trust is IQ tests.
Commerce and finance are not the same thing, Sunbeam. Commerce means trading real goods; finance means playing shell games with money.
Here’s my own hypothesis regarding religion and finance: Historically, both Islam and the Catholic Church forbid usury; the Jews and Protestants, in general, did not. It makes perfect sense then that the latter would have a greater cultural affinity for finance than the former.
Anatoly, didn’t the Orthodox Church also ban usury?
Regarding the Buddhists, Confucians, Animists, etc., I have no general hypothesis to offer.
In Japan, household budgets and finances are managed by the women. Japanese salarymen hand over their salaries to their wives, who give them an allowance or pocket money in return. I imagine it may be similar in Korea and China. It could be that the men there never deal with and know much about finances, sort of like how when wives used to do all the cooking and cleaning, few men knew how to cook.
“Why male Japanese wage-earners have only ‘pocket money’”
http://www.bbc.com/news/business-19674306
Here's my own hypothesis regarding religion and finance: Historically, both Islam and the Catholic Church forbid usury; the Jews and Protestants, in general, did not. It makes perfect sense then that the latter would have a greater cultural affinity for finance than the former.
Anatoly, didn't the Orthodox Church also ban usury?
Regarding the Buddhists, Confucians, Animists, etc., I have no general hypothesis to offer.Replies: @Hibernian
Old Joe Kennedy was pretty good at finance… …and bootlegging.
Three questions out of five require manipulating percentages in your head. Many people have a problem with doing that; they just don’t get percentages. But they often easily get the same problem if you restate it in dollars and cents.
Also, I can see how in lower trust societies people may have a different perspective on Question 1, which asks if it’s safer to invest in a single or multiple businesses. As far as the researchers are concerned the correct answer is multiple businesses. But a person from a low trust society would likely think that the safest way is to invest all your money into a single business – your own. This would be far more preferable to handing out the money to a bunch of strangers of questionable trustworthiness.
Old Joe should’ve doubled down on the swimming lessons for the kiddies.
Is it Protestantism though, or harsher environments?
Harsh or challenging environments create people who need to keep on the ball (crafty people survive, lazy people die). A lot of Protestant countries are also Northern European, where planning ahead (harsh winters) is nessesary to survive.
Harsh or challenging environments create people who need to keep on the ball (crafty people survive, lazy people die). A lot of Protestant countries are also Northern European, where planning ahead (harsh winters) is nessesary to survive.Replies: @Anonymous
The British Isles and North Sea area is pretty mild because of the Gulf Stream compared to NE Europe and Russia and elsewhere.
Read Gregor Clark's A Farewell to Alms
Some of the boys could swim pretty good, just not good enough to save their traveling companions.
Mormons are great businessmen. The early Mormon church encouraged converts to immigrate to Utah. The converts mostly came from England, Denmark, Sweden, Norway, and I believe Germany.
Here is an unofficial and incomplete list of common Mormon last names:
http://furtherlightandtruth.blogspot.com/2011/03/list-of-most-common-mormon-surnames.html
I could be pretty good at finance too, if, like old Joe Kennedy, I had inside information!
True but Malthusian pressure in Britain favoured the hard workers survivng
Read Gregor Clark’s A Farewell to Alms
Anatoly, did you know PISA 2012 had a financial literacy component? Have a look at page 36 of the PISA overview and the sample test questions.