Intelligence is Linked to Income, but Not to Wealth

Here's a very interesting piece from Yahoo that gives some insights into how intelligence is related to wealth and income. We'll start with the middle of the piece where it notes that past studies have shown a relationship between intelligence and income. The details:

The study confirmed previous research which has shown that smarter people tend to earn more money, but pointed out there is a difference between high pay and overall wealth.

"The average income difference between a person with an IQ score in the normal range (100) and someone in the top two percent of society (130) is currently between 6,000 and 18,500 dollars per year," it said.

Ok, so if you're pretty smart, chances are you make more than others who aren't as gifted. But as we all know, it's not what you make, it's what you spend. Here at Free Money Finance I've seen tons of examples of people making good incomes who aren't making any progress on their net worth. If you want proof of this, check out Another Example that Earning a Boatload of Money Won't Make You Wealthy, How to Overspend on a Six-Digit Income and How to Go Broke on $200,000 a Year.

Unfortunately, making a big income and spending a big amount of it (or more) seems to be the rule more than the exception. While intelligence is linked to income, it is NOT linked to wealth. The details:

Intelligence has nothing to do with wealth, according to a US study published Tuesday which found that people with below average smarts were just as wealthy as those with higher IQ scores.

"Your IQ has really no relationship to your wealth. And being very smart does not protect you from getting into financial difficulty," Zagorsky said.

So the smart people out there are making a good living and yet are no better at accumulating wealth than anyone else. Maybe intelligence is linked to "spending more," huh? ;-)

Which leads me to another question: If intelligence is not linked to wealth, what is? What makes people wealthy? Discipline? Knowledge (different than intelligence)? Luck?

Let me know your thoughts in the comments below.

Comments

[MoleOnABull]

Behavior, IMHO, as a result of knowledge and discipline is linked to wealth more than anything else.

[Enough Wealth]

After "IQ" came "EQ" (for all those marketers/advertisers/managers who couldn't work out how to find the "Any key" on their computers, but were paid big bucks for being able to "handle" other people into doing what they wanted). Perhaps we now need to measure "WQ" (copyright Enough Wealth 2007,if it isn't already claimed by someone!) to measure someones ability to accumulate wealth.

[Katy Raymond]

I love listening to the callers on Dave Ramsey's show. And I recently got to see 10,000 of his followers at a live event in KC. I think my husband and I were the only folks to carry our Starbucks into the arena. And I'm not bragging!!! I'm guessing there were quite a number there who, while not in the top 2% in intelligence, were completely debt-free and adding to their net worths daily. Instead of, ahem, adding to Starbucks bottom line daily.

My husband and I both score in the top 2% on intelligence tests, but our wealth quotient has yet to catch up. I'm currently taking lessons from the Dave Ramsey crowd and I'm not too proud to admit it. They've got it going on.

[digger-won800KFromUKLottery]

I still believe in IQ/EQ. Like, it's not how much you make, it's how you spend it. That kind of thing. Make money, save or invest it. It's all about discipline and attitude.

My 2-cents worth...

[Suze]

Discipline is different from intelligence. I've always thought that discipline is the most important characteristic of those who accumulate wealth.

[Suze]

Discipline is different from intelligence. I've always thought that discipline is the most important characteristic of those who accumulate wealth.

[Chris]

Mole has it right. Behavior is the biggest factor in creating wealth, because no matter how much money you make, it's what you do with that money that generates positive or negative wealth.

I also feel it has to do with perspective. I think many people (most?) just cash their checks, figure out how to make it pay the bills, and then spend away whatever is left. Thinking of your personal finances like a business is a big step to creating wealth, in my opinion.

[plonkee]

Knowin what the right answer is differs from doing the right thing. Discipline and self-control are particularly necessarily the domain of the intelligent. Nor are organisational skills. Also, some people that overspend do so to compensate for some other area of their life (i.e. their overspending is predominantly psychological) and that is completely independent of intelligence.

[Lord]

I wonder if it isn't values. Those that value money will become wealthy. Those that don't won't. It may be a difference if what they see money as, the former as freedom and independence, the latter as future consumption, greed, or insignificance.

[Diane]

I think common sense should never be underestimated. It is a huge factor as is taking the time to find the most economical ways to save money and the most profitable ways to increase savings. Never pay someone else to do what you can do yourself; that includes handling your finances.

[[email protected]]

I think that the average person learns that opportunities come to all of us at some point. The wealthy person learns how to spot those opportunities and grab them when they do come around. Wealth has nothing to do with intelligence or how much money a person makes, it has to do with searching for and finding things that the average person does not see.

[Mark Rosner]

this really is interesting and i commented on the ability for average IQ'ers to achieve better business returns over here...

http://www.capitalai.com/blog/2007/05/21/false-statement-higher-iq-equals-greater-wealth-better-business-ideas-and-superior-ego/

[Dr. Artfredo C. Abella Ph.D.]

Intelligence may lead you to greater income but not necessarily to wealth. The disadvantage of being intelligent with high IQ would tend to position a person to higher income but still it would not make him or her wealthy. Wealth is a higher plain on the level of financial independence. It connotes many things - it could mean wealth in terms of health, relationships, intentions, peace of mind, financial independence as well as happiness in life. Most of intelligent people would increase their incomes as a result of higher IQ but there is always a saying it is not what you earn but what you save that counts. The more you earn the propensity to spend will also be great. Most millionaires are average people with average IQ but it is their persistence to become wealthy that makes the difference. Most if not all would read books on wealth accumulation, How to get Rich and How to become Wealthy that matters most. Whether you have higher IQ or not does not matter. This is probably why most wealthy people would relatively be of moderate or average IQ than those whose intelligence are high but having less interest in knowing how to handle their incomes. The better side in understanding wealth is to to increase the accounts in the Balance Sheet than in the Income Statements as this would provide long lasting wealth and assurance of financial stability. Higher incomes would mean higher income or business taxes. While increase in the Balance Sheets seldom affects revenue transaction fees. One example is cash - if you increase your cash there is no revenues imposed by the IRS but increase in both gross and net incomes are subject to taxes. Increase in Fixed Assets doers not entail much payments of revenue fees except capital gains tax but the better side of it - it provides greater and long lasting assets for your business which could be converted to liquidity once needed. It will also be bias to generalize that persons with higher IQ tend to be lesser wealthy than those with average IQ although generally that is the common or empirical experience. In a holistic sense we could say that a person with higher financial intelligence would be more likely to be wealthy than the average person with average IQ. However, pragmatically speaking average persons with average IQ are mostly the ones who become millionaires.

[Shaun Rosenberg]

I read an article one day that did a survey of everyone who came out of this big named school. (I want to say harvard).

They asked them what there plains for the future were. Only 5% had any. The other 95% were just planing to get a good job and hope for the best.

When they re-interviewed them many years later the 5% who had a plain had more wealth then the other 95% of the students combined.

Wealth is something that comes from vision. Anyone who thinks big will become big. Anyone who does not think will fade off and become just another of 6 billion people.

[E.F.]

Why should intelligence be linked to wealth? Intelligence as such matters little. An intelligence thief just steals more stuff, and serial killers have above-average intelligence, which makes many of them hard to catch. Obviously then, intelligence must be accompanied by a conscience and empathy to contribute anything positive to society.

To achieve wealth, intelligence has to be accompanied by discipline, self-awareness, concrete goals, and an actual PLAN. People who have a spending and investment plan have a net worth of 30-40 higher than people who have no plan.