A recent study found a latent correlation between IQ and Financial Literacy of r=0.76
This is "real life as an IQ test"; unfortunately, many have poor finances due to their intelligence.
A few example questions and the IQ they test for🧵
Starting off easy, risk: This question best tests for an IQ of 70, and about 90% of people got it correct.
A minority of people don't understand even the basics of risk.
Next, diversification: This question best tests for an IQ of 91, and 61% of people got it correct.
Risk can get complicated, and for many, diversification is unintuitive.
Credit cards are harder: here, you have to figure out that the interest grows at the same rate as your monthly payment.
Understanding interest and borrowing can be genuinely hard for many, 24% of people got this right, and the question best tests for an IQ of 120.
Overall, money and its complexity are overlooked as sources of stress, and that’s why personalities like Dave Ramsey sometimes give less-than-optimal financial advice for the sake of simplicity.
Technical note: when I say "best tests for" I am referring to the IQ for which the questions' information is maximized, since there is a lot of noise for any specific question, whether or not someone gets the answer correct is a very weak measure of their IQ alone.
Source: sciencedirect.com/science/articl…
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