A high IQ is no financial guarantee

Yes, smarter people make more than someone with an average IQ. But they pretty much end up with the
same amount of money.
By Karen Aho

You don't have to be a genius to manage your money.

That's the take from a new study of intelligence and wealth, which looked at thousands of baby boomers
and found that those with average and low IQs were just as good at saving money as those with high IQs.
At the same time, smart people were just about as likely to run into credit problems.

"If I were a person with low intelligence, I shouldn't believe that I'm handicapped in any way, shape or
form in achieving wealth," said the study's author, Jay Zagorsky, a research scientist at Ohio State
University's Center for Human Resource Research. "Conversely, if I'm sort of high intelligence, I shouldn't
believe I have any kind of special advantage.

"I don't care what your IQ is -- you can do well."

It's important to note that the study focused on only one population group. Using data from the Labor
Department's National Longitudinal Survey of Youth, it looked at 7,403 Americans born between 1957 and
1964, and their financial data from 2004. Another age group might have revealed different spending habits.

Nor did the study, published in the journal Intelligence, buck the long-supported conclusion that high
intelligence translates into high income. Zagorsky's subjects earned an average of $234 to $616 more per
year for each added IQ point, meaning someone with an IQ of 120 (top 10%) made $4,680 to $12,320 more
than those crowded in the middle of the bell curve with an IQ of about 100.

Where the study did differ -- and it could be the first to do so -- was in analyzing the relationship between
intelligence and two additional factors:

• Wealth, or net worth, the difference between one's assets and liabilities. Zagorsky added equity,
pay, cash, stocks and any valuable goods, then subtracted all debts.

• Financial stress, determined by three questions: Any maxed-out credit cards? Missed a payment or
been two months late in the past five years? Ever filed for bankruptcy?

Zagorsky adjusted for outside factors that affect wealth, such as education, divorce, inheritance, smoking
and psychological well-being (yes, people with high self-esteem and a sense of control earn more) and, to
his surprise, found:

• While those with above-average IQs were three times more likely to have a high income as those
with below-average IQs, they were only 1.2 times more likely to have a high net worth. "Simply
put, there are few individuals with below-average IQ scores who have high income, but there are
relatively large numbers (of those with below-average IQs) who are wealthy," he wrote.

• No IQ group had built up "a significant financial cushion." The median baby boomer's wealth
equaled 18.6 months of income, while the highest-scoring group, those with an IQ of 125 or
above, had little more than two years of income saved.
 • Subjects with a 105 IQ had the same median income as those with a 110 IQ but had a greater net
worth: $83,918 compared with $71,445.

• The likelihood of financial difficulty peaked with IQs closest to the 100 average.

"I was expecting that smarter people would have greater wealth," Zagorsky said. "And you kind of expect
people with higher IQ to make fewer mistakes. . . . I thought, 'Wow, I must have made a mistake.' "

No mistake has been found, but there are possible explanations.

The study doesn't include factors that can influence a person's desire to save in the first place, said
economist Sherman D. Hanna, who teaches financial planning at Ohio State University and read the report.
People with high IQs could have jobs with good pensions and feel financially secure for many reasons. Or
they just might choose to spend what they have, like everyone else.

"An economist would say your goal is not to maximize your net worth; your goal is to maximize your
satisfaction from your money and other resources," Hanna said. "So it may be reasonable."

Zagorsky's university colleagues have told him the same, saying: "We are incredibly 'wealthy.' We don't
work many hours, and we get to work on whatever projects we want."

As to the missed payments, Hanna pointed out that people with low IQs and a corresponding low income
probably get fewer credit card offers and are financially tentative. On the flip side, he's seen his bright
students take giant financial risks, confident in their future high-earning potential. Why not max out the
card in Italy? I'll have a good job when I get back.

And before we leap to the image of the absent-minded professor -- so consumed with deconstructing
existentialist philosopher Martin Heidegger that he can't pay his Visa -- remember that the sample size is
very small, said Hanna. Only 2.3% of the population has an IQ of 130 or above -- in this study, some 170
people. Less than one-half of 1% has an IQ of 140 or above.

Still, the research does a good job of proving that the basics of money management are fairly simple,
attainable by anyone with a minimum level of intelligence, according to Hanna. "It's not rocket science," he
said.
Published July 10, 2007