Not everyone is born the same. Some people are born taller or with better eyesight than others. Environmental factors like socioeconomic status impact life outcomes. One particular outcome of interest to readers of personal finance blogs is the relationship between intelligence and wealth – in particular, the question: are smart people richer?
Are Smart People Richer?
Yes. All things being equal, the evidence suggests smart people are richer.
Here are two studies published in peer-reviewed academic journals on this topic. The first is a 2007 statistical study published in the journal Intelligence. The author, Jay Zagorsky, writes:
How important is intelligence to financial success? Using the NLSY79, which tracks a large group of young U.S. baby boomers, this research shows that each point increase in IQ test scores raises income by between $234 and $616 per year after holding a variety of factors constant (source).
The second study is a review of three groups of people of high influence – billionaires, the Forbes List of “powerful people” and participants at the World Economic Forum (Davos). The study’s author Jonathan Wai examined intelligence, measured by high exam scores and attendance at elite universities, and found the following:
• Billionaires, powerful people, and Davos attendees are highly educated and smart.
• Overall, higher education and cognitive ability was associated with higher net worth.
• Billionaires and Davos attendees majored primarily in business and STEM.
• In the U.S. top 1% ability people were overrepresented 45 to 85 times within groups.
• Smart people hold a disproportionate share of global wealth and power (source).
There are limitations to both studies. Zagorsky measured intelligence using intelligence quotient (IQ). Wai’s measurement of intelligence was university entrance examination scores. Both of these are less than perfect indicators of intellectual ability. Neither study looked at important factors such as knowledge of finance or having high net worth parents.
Even factoring in these limitations, smart people appear to have higher net-worth. Whats more, they are disproportionately wealthy and influential.
So What If Smart People Are Richer?
If you’re a serious wealth builder, finding the answer to the question “are smart people richer” may not matter for your personal finances. Aside from education and exercise there aren’t any quick fixes for a lack of brain power. Probably what makes the most sense would be to continue to follow tried and true wealth building patterns like saving, diversifying and investing in stocks, real estate and mutual funds.
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Hat tip: Liberty Corner.