More Factors that Affect Wealth-Building
This week’s Yahoo!Finance column “Why Smart People Make Bad Financial Moves” looks at a study by Ohio State University researcher Jay Zagorsky, who found no link between IQ and net worth.
Zagorsky has been mining the data from the government’s National Longitudinal Survey of Youth for some time. Aside from finding no relationship between IQ and net worth, he’s discovered other factors that negatively impact wealth. They include smoking (especially heavy smoking) and getting divorced. On the plus side, net worth was enhanced for people who were self-employed or in a management position, who had health insurance, were married or had siblings. (Being one of eleven children I have to wonder if sibling rivalry plays a role.) And here’s a shocker: Net worth was higher among people who had inherited money.
Meanwhile, three psychological variables known as “locus of control, self esteem and mastery scale” were found to have a positive impact on net worth. “This means that individuals who believe they have more control or mastery over their life have more wealth and possibly more income,” Zagorsky writes in the study in the journal Intelligence.
What tangible or psychological factors do you think play the biggest role in building wealth? I’d love to hear your comments.
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May 4th, 2007 at 10:07 pm
I’ve known people who were highly educated but had little to no financial literacy. One friend of mine comes from Sweden where there is quite a strong safety net. He prefers to live the life of the mind and not be bothered with the mundane details of building wealth. I don’t think it repels him. He is disciplined in his job and research. But his first goal seems to be a stable University appointment and making a modest breakthrough in his research rather than hunting for a sure path to wealth.
May 7th, 2007 at 9:44 pm
I am actually surprised that inheritance increases wealth. I suspect that if the survey goes long enough that those who are bad with money will dissapate their inheritance and those who are capable will increase it, thereby making the difference larger.
I buy in to the hustle factor (which doesn’t bode well for me). I also really believe the Millionaire next door about controlling spending being a huge key. One thing that will screw up the survey (in my mind) is those with pensions vs 401k. the value of 805 of your pay for life with pay rate increases (teachers in massachusetts) doesn’t show where 500K in a 401k will (I say the teacher is wealthier)
May 7th, 2007 at 9:53 pm
I was able to take a look at the article, and had a number of thoughts about how to interpret the analysis.
One thought was that people with higher IQs had more education, so would have spent more years in school, hence fewer years working. This would explain the higher income but lower net worth. However, the analysis controls separately for net worth at age 28.
Another thought I had along these lines– IQ contributes to income but not net worth, education contributes to both– IQ is an input that if used for education can be turned into a productive resource, but if not used for education does not add particular value.
One variable that would be interesting to see would be whether the individual was a homeowner & where, since it is likely that a lot of the net worth at this stage in life and year was tied up with real estate.
The self esteem and mastery variables are interesting, along with the self employed variable, imply something about responsibility and wealth.
A variation of this analysis would be the identification of those who were “on track” in saving for retirement– net worth relative to age and income.
May 8th, 2007 at 12:09 am
I’m one of those people with a relatively high IQ and very low net-worth, and I think that what often makes intelligent people terrible with money is the simple fact that many of us find it trivial. While I can’t speak for every member of MENSA, I can definitely say that when a person’s passions are ideas, concepts and intellectual pursuits, there’s an automatic disregard for many things outside that sphere that doesn’t contribute to that goal. I imagine it must be similar for people who are the opposite, who can’t read a word yet achieve great wealth: they’re focus is on something they can more easily understand, consider important, and are naturally good at. It’s pretty much the same for me, except I consider the life of my mind infinitely more important than the size of my bank account… I guess the only advantage to being intelligent as opposed to being “wealth savvy” (and I risk sounding arrogant here, but I assure I mean nothing of the sort) is that basic financial skills are considerably easier to accrue than, say, learning, understanding & seeing the beauty in the theory of relativity. Also, the argument is somewhat unbalanced since money & wealth are something that everyone appreciates even on a superficial level- our society places a frightening amount of weight on how much a person is worth financially- while the pleasures of intelligence remain basically uncomprehended by significant portions of the population. But in reality both sides are equally necessary, and both kinds of people are required to make our society what it is… and my best advice to intelligent people who can’t manage money remains: treat yourself by hiring a good accountant. Thanks for reading!
May 11th, 2007 at 3:40 pm
I agree with Orion about intelligent people not being concerned about money and therefore do not pursue it over other pursuits. My brother is the absolute most intelligent person I know, and I work with a lot of intelligent people, but he sincerely couldn’t care less about the material. By the way, my beloved alma mater is now officially known as The Ohio State University (yes, the “t” in “The” is purposely capitalized).
July 6th, 2007 at 8:50 am
My comment is a relevant request than a comment. As a younger man I did some research on IQ and income. In the 30’s and 40’s psychologists believed that millionaires possessed a superior IQ. This was later disproved by an observation that some millionairres possessed a lower than average IQ. When I saw “Forrest Gump I was reminded of this material. Forrest bears an uncanny resemblance to the painter described by the researchers I read about all those years ago. Would you or any of your readers be familiar with the material I am refering to ?