Are Smart People Bad With Money?

A new study shows that people with high IQ’s tend to make more money, but they also spend their money more quickly and frivolously than those with lower IQ’s. Jay Zagorsky from Ohio State University looked at data from 7,400 Americans in their forties. It shows that every IQ point scored translated into about $200 to $600 a year. However, it showed that those with a low to average IQ accumulated more wealth over their lifetime, because they spent less and they lived a more simple life.

Zagorsky said this: “Those with low intelligence shouldn’t believe they are handicapped by it”.

His conclusion was that smarter people tend to squander their wealth more than people of more simple minds.

This seems like a silly study that would be hard to quantify. How he came up with $200 to $600 a year for every IQ point is beyond me. But, I think his conclusion has some truth to it. The definition of “smart” should be clarified. There are those who are book smart and those who are street smart. I’ve noticed that those who are extremely book smart but neglected teaching themselves sound financial principles, tend to get caught in the rat race of keeping up with the Joneses. They buy flashy cars on credit, buy houses that they can barely afford, and they pride themselves for having the trendiest clothes and the latest electronics.

Those who are street smart but wouldn’t necessarily score high on a standardized test such as an IQ test, are the people that drive this country in the right direction. I believe those with street smarts and natural people skills make up a large part of the small businesses you use every day. According to the book “The Millionaire Next Door”, the author’s findings by studying hundreds of millionaires around the country were that many of them were simple-minded small business owners. Most of them were also first generation millonaires, meaning that they didn’t inherit their wealth.

The study by Zagorsky points out that those with lower intelligence tend to be better savers. They do not spend the way that people with higher intelligence spend. Again, if this is true, I think it has something to do with people of higher intelligence in higher career positions, that try to keep up with society. There are plenty of farmers and small business owners out there that would not score high on an IQ test, but they know how to save money, and they don’t care about having a 60″ television, a new car, or clothes from Neaman Marcus.

The study is a little far-fetched, but it’s a great encouragement for people like me that it doesn’t take knowing how to complete a rubix cube to be wealthy!

  • Enough Wealth

    “This seems like a silly study that would be hard to quantify. How he came up with $200 to $600 a year for every IQ point is beyond me…” – I’m pretty confident that the research methodology and statistical analysis were outlined in the paper (I can’t be certain since you didn’t link to the research itself) – perhaps you just need to brush up on statics and experimental design theory ;)

    My only criticism of this study would be regarding the conclusion that more intelligent people are “squandering” their wealth. Most people seem to have a goal of expending all their income during their life cycle – they save some for retirement during their peak earning years, but plan on spending it all during retirement. Very few people have a specific goal of accumulating wealth in order to leave an estate (I’m one of the few). So, perhaps the less intelligent people are less able to plan for their retirement needs, and accumulate excess wealth “by accident” (ie. unintentionally) by being excessively frugal.

    Anyhow, take it from a millionaire Mensan that not ALL intelligent people “spend their money more quickly and frivolously” ;)

  • author

    i totally agree, there are plenty of millionaires out there with above average intelligence. But, I think the point is that above average intelligence can get in the way of a rational view towards money.

  • Vela

    I am curious to know the careers of the people in the study. I was much better with money when I didn’t have the demanding job that I have now. Now I seem to be more geared toward convenience simply due to the demands of my job on my time and energy to shop around or cook for myself.