You buy a new £1,000 computer, but you need to take on some debt to finance it. You have two options: pay in 12 instalments, £100 a month for a year; or borrow at an interest rate of 20 per cent and pay back £1,200 at the end of the year. Which is the better offer? Or are they both the same?

Relax. If you’re flummoxed or guess wrongly, you have plenty of company. Annamaria Lusardi, an economics professor based at Dartmouth College in the United States, has been asking a lot of people this question. Only seven per cent of people in the US get the answer right apparently.

The answer is that it is better to pay at the end of the year. The amount you pay is the same – it totals £1,200 whichever way you look at it. But if you pay in instalments you start paying straightaway. You are reducing the debt every month. Despite that, you pay the same £200 in total. That means that the notional interest rate is a fair bit higher than 20 per cent. Well over 30 per cent in fact. If you don’t follow this reasoning, think about the point half way through the year. If you pay monthly, you’ve already paid half of the debt. You’re clear of £500 of what you borrowed for the computer. But you end up paying the same amount of interest as the person who hasn’t yet repaid a penny. That’s why it is notionally more expensive.

If you don’t understand that, don’t worry. Just read why I say this test is muddleheaded and unhelpful:

• It is entirely unrealistic. You don’t have those options in real life.
• If advertised APRs work the way they are meant to, such complexities get factored in. You need only look at the comparison rate – not do the maths behind it.
• It ignores far more significant factors about your psychology and the way you handle money. If you’re the kind of person who prefers to see a debt being whittled away, if you are nervous about your ability to find the money at the end of the year, if you don’t trust yourself to save it, you might sensibly go for the other option. And don’t let anyone tell you you are financially illiterate.
• It focuses on a sophisticated point that a lot of people don’t get. (There’s confusion and bewilderment in the comments on Tim Harford’s blog, even after the answer is supplied.) This alienates people, makes them feel useless with money and causes them to give up. That’s unhelpful.
• People need encouragement, not disparagement. They don’t need to be caught out with cheap tricks, or confused with hard calculations. They need genuine help.

Which brings up Tim Harford’s far more interesting insight. It is based on research conducted with entrepreneurs in the Dominican Republic. Economists gave small business owners different classes in how to manage their business cash flow.

Four hundred business owners were given a brief but comprehensive course in business accounting; another 400 received no training at all; the final 400 were given a course consisting of rules of thumb. These quick tips were intended to show how to keep business cash and personal cash separate, and how to use simple reckoners to figure out how profitable a business is.

The results were a triumph for rules of thumb. The business owners taught these simple maxims had better control of their accounts, saved more and seemed to manage cash flow better in hard times. The accounting training, by contrast, didn’t help at all.

That just has to be the answer. We need to develop rules of thumb, basic bits of commonsense, memorable guides, and disseminate them widely. It may not be easy, and it won’t be difficult to invent exceptions. But it’s much better than exposing people’s ignorance with tricky tests.