18 May 2007

Two Good Lessons

Smarter people earn more but aren't worth more:
Pop quiz! What factors help determine how wealthy you'll become in life? ... Ohio State economics professor Jay Zagorsky suggests different factors: "Staying married, not getting divorced, thinking about savings." Wow.

Not only did he not list intelligence, he went on to note that "intelligence really isn't one of the key driving forces. In fact, people at the middle of the smarts spectrum have the fewest money problems."

When I read about his findings from a study of 7,500 middle-aged Americans, I was surprised. It seems that the smarter you are, the more you tend to earn. For each IQ point you have above someone else's IQ, you'll earn between $200 and $600 more. As an example, he noted that someone with an IQ of 130 stands to make (on average) about $12,000 more per year than someone with an IQ of 100.

That's a promising start. We who are smarter than the average bear (I'm including myself and you) would reasonably assume, then, that smarter people would end up wealthier. But that was not suggested by the study. Instead, people with higher IQs and incomes tended to spend more, maxing out credit cards and paying bills late. At the end of the day, those with lower IQs often had a greater net worth.
1. Although we tend to confuse the two (and by "we" I mean those with a hankering for social engineering), income and wealth are two different concepts and are not as related as we think.

2. By intelligence we mean a talent for a few specific pursuits. Those are not necessarily the most important pursuits and they don't necessarily lead to happiness. Just as income is not wealth, intelligence is not wisdom.

9 comments:

Oroborous said...

On the other hand, the top ten richest families in America, (counting all of the Waltons as one), according to Forbes, are/were all headed by really, really smart people.

(With the possible exception of Jack Crawford Taylor, about whom I know nothing).

Oroborous said...

Also, regarding point (1), the more we try to create homogeneous levels of income, the more we cement the position of those who are already wealthy, since a tax on income is also a brake on acquiring wealth.

Sweden has much less income disparity than do the U.S., but they also have far less social mobility. It's virtually impossible for people of average skill and drive to work their way to wealth, since the common routes, such as taking a second job or acquiring a higher education, result in a much higher tax burden, to the point where most people just don't feel as though it's worth doing.

And that analysis comes from the Swedes themselves.

Peter Burnet said...

At the end of the day, those with lower IQs often had a greater net worth.

Probably because they are generally better able to bear the discipline demanded by stability, routine and boredom and because they have less difficulty accepting the role of chance in their lives. I think once you get past "solid" on the intelligence scale there is a correlation with emotional fragility and dissatisfaction and also with destructive controlling behaviour. It is fascinating to watch the very intelligent caught in a lawsuit. They can be very high-maintenance clients who can't stop dwelling on the infinite complexities of their case, can't trust their lawyer or anyone else to get it right and are absolutely convinced they can't lose if only their case is presented in exactly the right way, the evidence in the right order, with the right words, etc. Often they foolishly push it when they should settle out and they frequently end up with a disaster they blame on all the idiots around them. (In fairness, the same syndrome can afflict those who think they are ultra-intelligent but are actually just fools quick on their feet.)

Of course, many of them behave the same way with their marriages, employers, creditors, etc. Others blog too much when they should be attending to investments or the garden.

Duck said...

I can attest to the wisdom of the staying married qualification, sadly.

Peter, would your client of last Wednesday be one of those too intelligent for his own good types?

Hey Skipper said...

I happen to be lucky enough to have known a fair number of unusually intelligent people, although not enough to move from anecdote to evidence.

All of them have both significant incomes and wealth, and consume well within their means.

Oroborous said...

High IQ link to being vegetarian

Intelligent children are more likely to become vegetarians later in life, a study says.

A Southampton University team found those who were vegetarian by 30 had recorded five IQ points more on average at the age of 10.

Researchers said it could explain why people with higher IQ were healthier as a vegetarian diet was linked to lower heart disease and obesity rates.

The study of 8,179 was reported in the British Medical Journal.

Twenty years after the IQ tests were carried out in 1970, 366 of the participants said they were vegetarian - although more than 100 reported eating either fish or chicken.

Men who were vegetarian had an IQ score of 106, compared with 101 for non-vegetarians; while female vegetarians averaged 104, compared with 99 for non-vegetarians.

There was no difference in IQ score between strict vegetarians and those who said they were vegetarian but who reported eating fish or chicken.

Researchers said the findings were partly related to better education and higher occupational social class, but it remained statistically significant after adjusting for these factors.

Vegetarians were more likely to be female, to be of higher occupational social class and to have higher academic or vocational qualifications than non-vegetarians.

However, these differences were not reflected in their annual income, which was similar to that of non-vegetarians.

Lead researcher Catharine Gale said: "The finding that children with greater intelligence are more likely to report being vegetarian as adults, together with the evidence on the potential benefits of a vegetarian diet on heart health, may help to explain why higher IQ in childhood or adolescence is linked with a reduced risk of coronary heart disease in adult life."

However, she added the link may be merely an example of many other lifestyle preferences that might be expected to vary with intelligence, such as choice of newspaper, but which may or may not have implications for health...

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Interesting stuff, but a couple of things struck me: Roughly a third of "high IQ" self-reported vegetarians apparently don't know that vegetarians eat, like, just plants, not the putrid flesh of animals.

Also: "Vegetarians were more likely to be of higher occupational social class and to have higher academic qualifications than non-vegetarians.

"However, these differences were not reflected in their annual income, which was similar to that of non-vegetarians."

Ya don't say. So essentially, high IQ children are more likely to grow up to be pretentious people with plentiful accreditation but few valuable skills, and vegetarians ?

Finally, I should probably note that I'm not bashing vegetarians qua vegetarians; I think that vegetarianism can be healthy, I'm related to people who practice it, and my own diet is nearly vegetarian.

Bret said...

My best friend in high school was voted "Most Likely to Succeed". He went on to triple major at Cornell, started med school, and ... completely fell apart. I don't know what he's doing now, but he pretty much completely dropped out of society and was jobless and went home to live with his parents for many years. Constantly being reminded of his potential and the disappointment everyone (his family primarily) would feel if he didn't live up to it, destroyed him. My hunch is that it's that sort of pressure that causes those of above average intelligence to be fragile, unstable, and neurotic.

Another factor (in my opinion), is that those with above average intelligence are slow to realize just how little extra income they're gonna make because of their intelligence. $400/yr per IQ point ain't diddley. Yet when I was young, being of somewhat higher than average intelligence, I was definitely under the impression that the spread would be bigger. I think that if those with higher intelligence realized how little they were going to make, they would plan their financial future more carefully.

Lastly, I think that more high risk opportunities are available to those of high than average intelligence. Like all high risk ventures, most worse, a very few do much better. This correlates with oroborous' observations that the very richest happen to be intelligent. In my current venture, I have a very small chance of making $100 million and a very large chance of making zero (except for a below market salary). It also happens to be doing something I love (robotics) so how could I pass up the chance to do it? But I'll very likely be substantially poorer than if I had just gotten a normal, 40-hour/wk job and done some consulting on the side.

Oroborous said...

While I agree with you, Bret, I also note that with regard to your specific situation, you're demonstrating wisdom, rather than intelligence.

Once we have enough money for beans and a roof, job satisfaction is almost always a better motivator than more money.

On that note, some funny cartoons about motivation, and a funny de-motivational poster.

joe shropshire said...

Over on Econlog, Arnold Kling links to a post by Greg Mankiw on this same study. Steve Sailer, in the comments, is unimpressed:

If, however, you statistically "control for" factors that correlate with both IQ and character, like education level achieved, you can make the IQ effect magically disappear. But, all that's happening is showing that high IQ plus low self-discipline equals average wealth accumulation.