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April 27, 2007

Comments

How do you "control" for education? Education isn't a one-dimensional thing. A bachelor's degree in EE from MIT isn't the same thing as a degree in English from Virginia Tech. Controlling for type of work is also an oddity, but I suppose it eliminates the distortive effects of all those moronic brain surgeons and rocket scientists.

But when Zagorsky controlled for other factors – such as divorce, years spent in school, type of work and inheritance...

Aside from inheritance, isn't this basically saying that if we factor out the effects of all the smart things smart people do (e.g., get more education, avoid divorce, go into lucrative careers, etc.), they're not any richer than normal people?

Well...yeah. Because we've factored out all the mechanisms by which intelligence contributes to wealth.

Living a white collar lifestyle requires more expenses than a blue collar lifestyle,

Very good point. And smart, educated people are single longer, so seeking mates probably contributes to their need to run up credit card debt.

I don't understand your point. The researcher controlled for the same variables in order to determine the relation between IQ and income, where greater IQ scores do have an effect. From the SciAm article:

"But this higher yearly income did not translate into higher wealth. ... When Zagorsky controlled for variables like race, education, job status and even factors like smoking, the gap between IQ and wealth remained the same."

The bottom line: In order to accumulate vast wealth you need to be either extremely lucky or extremely anal-retentive. IQ scores do not enter into it.

And smart, educated people are single longer, so seeking mates probably contributes to their need to run up credit card debt.

Not necessarily. A parasaito shinguru can live very cheaply and accumulate a lot of savings, since she does not forgo household economies of scale.

You're right about money being the result of luck (I would subtract anal-retentive and add rich parents) and not IQ, but it seems unlikely vast wealth is a big part of this study, which focuses on averages for most people. Picking up (or, more likely, inheriting) vast wealth is a different story from just going to Harvard Law.

Overall I would say the article essentially validates HS's tracks theory.

I would subtract anal-retentive and add rich parents

Rich parents are comprised under luck (although it does include entrepreneurial luck and stock-picking prowess). It's not like one's got a choice in the matter.

I would subtract anal-retentive and add rich parents

Rich parents are comprised under luck (although it does include entrepreneurial luck and stock-picking prowess). It's not like one's got a choice in the matter.

Living a white collar lifestyle requires more expenses than a blue collar lifestyle

Not necessarily. Many items of conspicious material consumption - ATV's, powerboats, huge plasma TV's, motorcycles, recreational vehicles, pickup trucks, trips to Las Vegas, and so on - have a Joe Sixpack aura about them. This isn't to say that SCA's don't have expensive tastes of their own, for example they have their cartball club memberships and alphanumeric cars, but it's not a simple matter of Joe Sixpack lifestyle = cheap, SCA lifestyle = expensive.

IQ pretty much defines the social class in today's world. But personality determines the achievement within a certain class. I bet the median personality type, very possible the median IQ, within each class is the winning quality for success.

If you throw Einsein into ghetto class, he would performed even worse than reqular ghetto guys in that particular class.

That makes sense -- a high IQ person with only a BA/BS degree is basically an underachiever.

I think you guys miss it. The study (which doesnt seem to be on line and the news summaries leave a lot to be desired) says that higher IQ does result in higher income.

There is no effect on effect on net worth however. Which could be due to a number of causes, the most straight-forward of which is higher consumption levels of the higher IQ. The article says "Wolff believes that smart people often have high expectations for what they deserve."

Thats probably true. If you already see yourself as part of an elite upperclass why should you begrudge yourself things? Spungen said she did all her shopping at Whole Food or Trader Joes, and while there may be some advantages and disadvantages to that, it probably means that her bill will be 20% higher than a person buying comparable things at another store. Would she shop at a Dollar Store for personal care items?

This is probably a side effect of the Loreal slogan- once you are 'worth it' the expense never stops.

Turambar, you haven't read the quoted paragraph very carefully.

IQ has a correlation with both income AND net worth.

There is only no correlation with net worth AFTER other factors are added to the regression analysis, but those factors are themselves correlated with IQ.

However the way it relates is the high IQ enables a person to get better educational credentials, which enable a person to get into a better career track, which enables a person to earn higher income, which enables him to build greater net worth (a guy making minimum wage isn't going to be able to build much net worth).

Spungen said she did all her shopping at Whole Food or Trader Joes ... Would she shop at a Dollar Store for personal care items?

Hey, I did not say that. I said we often eat pre-prepared meals from places like Trader Joe's. Like those raviolis they have. They're also good for seafood and liquor. But I certainly wouldn't want to get stuck with Simple Green tampons or Tom's of Maine condoms. I do most of my shopping at a normal grocery store.

Personal care stuff, as well as things for the baby, we usually get at Target or Walmart. I didn't think any dollar store was cheaper than Walmart.

But I certainly wouldn't want to get stuck with Simple Green tampons

Well, they wouldn't stay green for very long :)


Well after reading Fox's summary yesterday thats one reason why I went to look for the study. Unfortunately I cant find it online yet. It seems to me that they are saying that IQ itself does contribute to higher income. ""Each point increase in IQ test scores is associated with $202 to $616 more income per year," he says. "

But when Zagorsky controlled for other factors – such as divorce, years spent in school, type of work and inheritance – he found no link between IQ and net worth.

The implication to me is that if other identified factors are the same then income may be higher but net worth wont be. Otherwise why wouldn't the article mention that as well?

The scenario that I am envisioning is that if you have two business majors both with 4 year degrees, some number of years after graduation the one with the higher IQ will earn more money. But their net worth will be equivalent, assuming they get divorced and smoke at the same rate. I am not clear if they are supposed to have gone to schools of equivalent quality.

Your reading, I think, is that if you had two children who were neighbors who varied in IQ by say 20 points, you should expect the high IQ child to have more schooling, and at more prestigious institutions. And that would result in a higher income, although this effect would be depressed the high IQ child perusing things like French Literature that arent well compensated.

I would like to see more information on this study to clear it up this point. I guessing these articles are all being written off of a common press release, but if your interpretation is correct, the wording of the head line does not seem to be justified.

Hey, I did not say that. I said we often eat pre-prepared meals from places like Trader Joe's. Like those raviolis they have. They're also good for seafood and liquor. But I certainly wouldn't want to get stuck with Simple Green tampons or Tom's of Maine condoms. I do most of my shopping at a normal grocery store.

Oops, sorry for using you as an unfair example then. I thought you had said something about buying cakes in a grocery store.

I'll use myself as an example. I have no problem with the added expense of Twinings tea bags verses store brand but my wife does [I see HS has already railed against Twinings verses Numi, but I consider Numi's packaging to be too pseudo-intellectual, so for me Twinings is mildly upscale]. I think I rate a semi-decent tea bag and I dont want it changing because of what happens to be on sale.

Likewise I dont begrudge myself in buying books in general or "A New Kind of Science" in particular even though I was only buying it because I thought the author was amusingly pretentious. My amusement was an important enough criterion that I real didnt worry about the utilitarian value of the book.

Now if you extend that "hey I'm an elite, I'm worth it" attitude to every area of discretionary purchase you can see its going to add up to a big surcharge on your lifestyle and hence reduce your networth. Vacationing in Myrtle Beach or the Poconos is cheap but low class. Or lets suppose that you are savvy enough to appreciate the terrior of coffee beans, is it reasonable to expect that you should have to degrade yourself with the truck drivers at Dunkin Donuts when you could be paying $4 at Starbucks?

It may be interesting to consider the article's title "Smarter people are no better off". Well they may not have a closet full of cash, but then the Unibomber was able to live on a couple of grand a year and I am guessing that really isnt a great lifestyle. Spungen is an elite with real office walls- isnt she 'better' off enjoying life with the ravioli that she prefers? Let suppose that her annual premium ravioli budget is $1000. If that cost avoidance just result in a slightly different number on her checking statement, I dont think that is really 'better'.

IQ, ambition, and a strong work ethic are not related. The latter two are perhaps just as important for amassing wealth.

"Or lets suppose that you are savvy enough to appreciate the terrior of coffee beans, is it reasonable to expect that you should have to degrade yourself with the truck drivers at Dunkin Donuts when you could be paying $4 at Starbucks?"

Those in the know drink coffee that has passed through the digestive system of the luwak. See here: www.animalcoffee.com

And I won't be seeing any of you average joes (no pun intended) at the Starbucks or God forbid, Dunkin' Donuts.

Those in the know drink coffee that has passed through the digestive system of the luwak. See here: www.animalcoffee.com

I've got a wonderful business idea! And it should work too ... after all, human digestive systems are much the same as a luwak's.

"On the surface, people with higher intelligence scores also had greater wealth. . . But when Zagorsky controlled for other factors – such as divorce, years spent in school, type of work and inheritance – he found no link between IQ and net worth."

http://tinyurl.com/2r2h5n

"On the surface" is the important qualifier here, because the claim is dependent on the appropriateness of the author's controls. The tables in the paper show that people at each increasing IQ level have dramatically more wealth as well as icome before these controls:

IQ____Net worth______Income
125___$133,250______$55,555

(Table 2)


Similar story for financial distress:


Maxed credit cards
100 - 8.6%
>125 - 6.1%

Missed payment
100 - 18.5%
>125 - 11.8%

Bankruptcy
100 - 13.7%
>125 - 5.0%

(Table 5)

http://dx.doi.org/10.1016/j.intell.2007.02.003

High IQ people earn more because they can master more complex and high demand skills. IQ is also strongly related to work performance at every level of job complexity, so IQ creates better employees and hence higher wages, promotion and reward.

High IQ people have a higher time horizon, so I predict they save more on average and take more financial precautions.

Intelligence is great, but being able to take a standardized test has little value to society. Without a stron work ethic, even the most intelligent person may as well be another idiot. I work with dudes that brag about MENSA membership, but ask them what the majored in; liberal arts. Why? Because it was easier than engineering or a hard science. That's laziness, and as far as I'm concerned, laziness and stupidity are very close cousins.

One other thing,

I wouldn't really consider Golf to be the sport of choice for the typical SCA. Golf is like bowling for dudes that don't bowl. It is a game where one can lack any sort of athletic ability and still be better than someone who can run a six mile minute. I would consider something like Rugby to be the pinnacle of alpha male sports, followed by soccer, basketball, etc.

That's not to say that SCAs don't play golf, but I don't see how golf could by indicative of someone's professional prowess or leadership ability. My boss plays Golf, but he can also kick ass at Rugby

"I've got a wonderful business idea! And it should work too ... after all, human digestive systems are much the same as a luwak's"

I'm way ahead of you, I've been stuffing the dog with coffee beans all week. She hasn't slept in 4 days, and I have to let her out quite a bit, but the 14 lbs of processed beans should fetch a tidy sum with coffee snobs. I'm going to call it Black Dog Coffee, it should sell like crazy. Goodbye day job!

High IQ people have a higher time horizon, so I predict they save more on average and take more financial precautions.

Well you can predict it, but absent another explanation, the point of the study was that they dont.

I wouldn't really consider Golf to be the sport of choice for the typical SCA. Golf is like bowling for dudes that don't bowl. It is a game where one can lack any sort of athletic ability and still be better than someone who can run a six mile minute. I would consider something like Rugby to be the pinnacle of alpha male sports, followed by soccer, basketball, etc.

Playing those other sports requires physical exertion. You cannot imagine how sedentary most men become once they pass the age of 30 or 35. Cartball is the closest thing we have to a completely sedentary sport and therefore fits the bill quite nicely.

"Playing those other sports requires physical exertion. You cannot imagine how sedentary most men become once they pass the age of 30 or 35."

I would imagine that the typical SCA would relish the opportunity to engage in physical activity, regardless of age. Again, I'm in kind of a rarified career field, but it's not uncommon for the older guys (40-50) to run marathons on the weekend, or do 100 mile bike rides. My supervisor is about ten years older than me and will still beat me in a 5k by several minutes. Of course I am on the slow side

I thought you had said something about buying cakes in a grocery store.

I did, I said grocery store cakes and cookies were for proles. :) So that does make me an "entitled" eater. But not as bad as someone who buys everything at Whole Foods.

Not necessarily. Many items of conspicious material consumption - ATV's, powerboats, huge plasma TV's, motorcycles, recreational vehicles, pickup trucks, trips to Las Vegas, and so on - have a Joe Sixpack aura about them.

Yes, there are certain plenty of things for uneducated people to waste money on. There are women in all classes who spend lots of money on clothes, makeup and shoes. But the lower you go, the more voluntary it is. Most educated jobs for women have higher standards. You're expected to shop at certain stores and buy certain labels and makes, and people -- men, too!-- will ask you about it.

Spungen, does Tom's of Maine really make condoms?? I do like their deodorant...

I agree that golf is stupid. At least my work softball games require some exertion. Any sport which isn't physically stressful is boring to me.

Another factor might be that most extremely wealthy people are involved in the business world. People who are engineers or scientists may make good money, but they aren't going to become exceptionally wealthy unless they can find a business angle to their work. Yet being successful in the business world probably requires less overall intelligence than being a successful scientist or engineer. Someone who could never manage to master physics, chemistry, partial differential equations, or Fourier analysis can still be a great businessperson. I haven't seen any figures, but I wouldn't be surprised if the wealth-generating potential of IQ starts to taper off pretty dramatically when you look at IQ scores of maybe 130 and up.

tommy, that's because businessmen are much more risk-loving than engineers. My guess is that hedge fund managers and Wall Street speculators will score way above 130.

Or it's just the efficient market hypothesis being validated.

In other words, given that two people are the same in every way (income, divorce, smoking...) but only differ in IQ, the way that net worths will diverge is if the higher IQ person can find better investment opportunities than the lower IQ person. Working just from a basis of a higher IQ, one would suppose that such differential investment opportunities exist and the lack of a difference in net worths is surprising.

However, the efficient market hypothesis suggests that no information driven (read as intelligence driven) differential investment opportunities exist. Therefore we shouldn't be surprised that different IQs do not lead to different net worths given the same income level.

Tommy: Thats not the explanation otherwise the lower intelligence group would show high current income as well.

Jody: That still is insufficient. If the rates of return are the same and positive, if one person has more money to invest then their net worth should end up being greater.

My guess is that hedge fund managers and Wall Street speculators will score way above 130.

That could be, but are there enough people in those fields to have any meaningful effect on the statistics?

Can we look at IQ as more of a limiting factor? You will have a very difficult time being sucessful in business with an IQ of 100. The concepts are simply too important. I know in (Top 50) consulting firms, almost everyone you meet has an IQ > 130. They all from Ivy League schools where they did well. But that was the minimum to be looked at. Afterwards being hired is also significantly based on personality.

So, I am not sure if it is clear that IQ stops being important. One thing that may happen at higher IQ is that people are more likely to find gratification outside the bussiness world, where incomes tend to be significantly lower (E.G. Working in a Lab).

half - "This makes sense, and is consistent with my own findings that, after education is accounted for, above average intelligence doesn't result in higher income."

Those findings are incorrect. They are at odds with the article presently being cited and with the findings of multiple researchers. Your use of a 10 item vocabulary test as an IQ test is incorrect and has led you to false conclusions.

half - "(And when I looked at only people with bachelor's degrees, higher IQ predicted lower income.)"

You deluded yourself into believing that you had IQ information. You did not.

half - "IQ predicts educational attainment, and educational attainment is what predicts income."

IQ does predict educational achievement, but people with the same education display income differences that correlate positively with IQ. Your conclusion is simply wrong and it is burned into your mind because you accepted a very poor indicator for IQ.

half - "And of course, without higher income, it's unlikely that one will wind up with a greater net worth."

Agreed, but income increases almost linearly with IQ, as has been shown by serious researchers, using real IQ tests. The wealth conclusion appears to be incorrect, as a close examination of the methodology shows. The numbers Zagorsky reports do not agree with other sources. For example:

http://www.businessweek.com/the_thread/economicsunbound/archives/2006/03/rising_real_net.html

This shows a per capita net worth of $148,900. Zagorsky quotes 55,250. Both are for 2004. This is a huge difference.

AG - "IQ pretty much defines the social class in today's world. But personality determines the achievement within a certain class."

Effort will show in any situation, but within a profession, brainpower is more important than any other parameter. If you don't have enough smarts, you can't even pretend to function in a demanding profession. Of those who make it as physicians, scientists, lawyers, engineers, etc. the smarter ones are much more likely to succeed. This has been shown beyond question by professor David Lubinski and his associates.

unknown - "Your reading, I think, is that if you had two children who were neighbors who varied in IQ by say 20 points, you should expect the high IQ child to have more schooling, and at more prestigious institutions. And that would result in a higher income, although this effect would be depressed the high IQ child perusing things like French Literature that arent well compensated."

There may be something to that line of thought. If one compares people within a given profession, those people have the same potential and will show a difference in performance (and income). But comparing a lawyer to a professor is going to give bogus results, for reasons we can all understand. Even with this career effect, higher IQ means higher income and that holds even when education is equal (HS is wrong on this point).

"I would like to see more information on this study to clear it up this point. I guessing these articles are all being written off of a common press release, but if your interpretation is correct, the wording of the head line does not seem to be justified."

I read the entire paper, but didn't have to look for it, as someone sent it to me.
Jay L. Zagorsky
Center for Human Resource Research, The Ohio State University, 921 Chatham Lane, Suite 100, Columbus, OH 43221, USA
Received 1 August 2006; revised 8 February 2007; accepted 17 February 2007. Available online 28 March 2007.

As you can see from the above, the material should be available today.

Tommy: Thats not the explanation otherwise the lower intelligence group would show high current income as well.

Not exactly. What I'm suggesting is that a certain minimum level of intelligence is beneficial in the business world but that as IQ scores increase, so do the odds that individuals with a certain minimum level of intelligence will be drawn to fields that require more brains but provide less monetary reward. It could still be the case that those highly intelligent people who do venture into the business world do disproportionately well but because of their smaller than expected numbers, the amount of additional wealth they accumulate as a group is also smaller than expected. What I'm suggest is that it might well be the case that the difference in earnings between people with an IQ of 120 versus people with an IQ of 100 is going to be a lot more dramatic than the difference between between people with an IQ of 130 versus people with an IQ of 150. I might expect to see wealth increase in a more logarithmic manner (rather than a linear or exponential manner) above a certain level of IQ as a growing percentage of high-IQ people turn to other intellectual pursuits aside from business.

tommy, that's because businessmen are much more risk-loving than engineers. My guess is that hedge fund managers and Wall Street speculators will score way above 130.

Perhaps, but hedge fund managers are a tiny, elite group compared to, for example, civil engineers or members of the American Chemical Society.

Tommy: The examples about slower increase might be true, but if you read the article, the people with higher IQ *do* have a higher income [I think, even correcting for education, etc]. Somehow this higher income does not show up in a greater net worth. The 'mystery' is what happened to the extra money. This is a per capita, so disproportionate numbers do not matter.


Morgan: That Business Week article doesnt specify the the age range of their data- so I'd assume that it covers all adults. I think Zagorsky'd data was draw from a specific group that has been followed in a study. I think they were 30-44 yo.

Did you find a free version of Zagorsky's study? Its not on Ohio State's web site yet and it looked like "Intelligence" wanted you to buy full text.


Turambar,

The ages of the people in the NLSY are well known and can be found in various documents, but here is an excerpt directly from the paper:

"The NLSY79 is a very large randomly selected
nationally representative U.S. panel survey that is
primarily funded by the government's Bureau of
Labor Statistics. The survey has questioned the same
group of young baby boomers 21 times between 1979
and 2004. Young baby boomers are individuals born
between 1957 and 1964 and are the tail end of the spike
in births that began after World War II. General details
about the survey are found in Zagorsky (1997). While
NLSY79 data start in 1979, this research focuses on the
2004 survey which contains both the latest financial data
and the first fielding of financial distress questions.
This research uses as its base 7403 respondents who
both answered the 2004 survey and have an IQ test score
from earlier rounds. In 2004 these respondents ranged in
age from 33 to 41 years old, with the average being
almost 37. The sample was split almost evenly between
men (50.7%) and women (49.3%). Like the U.S.
population, the majority of the sample was white
(79.5%) but both African-Americans (14.2%) and
Hispanics (6.3%) are represented."
-------
"Did you find a free version of Zagorsky's study? Its not on Ohio State's web site yet and it looked like "Intelligence" wanted you to buy full text."

I don't know if there is a free version available. When the file first became available, a guy e-mailed it to me from Germany, but I have (paid) access to the file, so I downloaded it as a PDF.

So am I missing something? Are we not talking about different populations between Zagorsky and Business Week/Federal Reserve?

I only read the Zagorsky paper. His study is based on a relatively narrow slice of the population. We all know that wealth increases with age and I suspect that it increases rather rapidly after children are no longer dependents. Since his paper will appear (it is still in press) in the top psychometric journal, it may generate some additional studies or feedback.

Keep in mind:

1) Wealth increases with age because people have more years to accumulate wealth the more years they've been alive.

2) Income goes up more with age for higher IQ people than with lower IQ people. Hence ability to accumulate wealth at a faster rate goes up with age more for higher IQ people than with lower IQ people.

3) Higher IQ people spend more time in school accumulating debt (aka negative net financial worth).

You can see from all the above that looking at the net worths of higher IQ people in their 20s or even 30s provides a misleading picture of their eventual net worth.

Also, higher IQ people generate more wealth that flows to others than do lower IQ people. Every inventor and scientific discovery produces stuff which delivers the vast bulk of its benefit to others. Therefore the total wealth generation and accumulation capacity of the full economy is boosted by higher IQ people. Dumber people can accumulate more wealth because smarter people develop the means to create wealth.

Randall,

"Wealth increases with age because people have more years to accumulate wealth the more years they've been alive."

Yes, but that is only one factor. More importantly, wealth increases with age because salaries increase with age (experience and job hierarchy). At the same time, wealth accumulates due to decreased expenses (children and the cost of buying the things that will be used for decades, or a lifetime, such as furniture).

Wealth also accelerates (sometimes dramatically) for people who choose to invest part of their income. As the amount of money allocated to investment increases and the return on the investment compounds, the total invested wealth accelerates. This is usually an insignificant factor in the first decade and a big one after 3 or 4 decades.

The debt that people accumulate by virtue of paying for school is very unlikely to last for over two decades and is probably not a factor in more than a small percentage of the population. Some pay for schooling by ways other than borrowing. I didn't borrow anything, but earned three degrees, two of which were paid for by my employer.

The survey has questioned the same
group of young baby boomers 21 times between 1979
and 2004. Young baby boomers are individuals born
between 1957 and 1964 and are the tail end of the spike
in births that began after World War II. General details
about the survey are found in Zagorsky (1997). While
NLSY79 data start in 1979, this research focuses on the
2004 survey which contains both the latest financial data
and the first fielding of financial distress questions.
This research uses as its base 7403 respondents who
both answered the 2004 survey and have an IQ test score
from earlier rounds. In 2004 these respondents ranged in
age from 33 to 41 years old, with the average being
almost 37.

If the youngest people were born in 1964, and they were questioned in 2004, then doesnt the range start at 40 years old, not 33?

Anyway, I am unconvinced by Randalls argument about 'eventual net worth'.

I blogged a criticism of the paper at
http://www.aleph.se/andart/archives/2007/04/cubic_terms_make_smart_people_bankrupt.html
where I argued that it suffers from serious overfitting. Rather than trying to explain/explain away the claimed findings I think it is beneficial to take a sharp look at the statistics: I think the paper was driven far too much by software features. In particular fitting a cubic polynomial to financial distress looks like a bad choice.

I was actually going to link Anders' post. Here's another critique by a clinical psychologist.

Anders,

Good work. You are right--it is a case of too much fitting.

Jason,

Thanks for the link. The comments there are sound and worth reading.

That makes sense -- a high IQ person with only a BA/BS degree is basically an underachiever.

Wealth (Net Worth) is a result of producing more than one consumes and living within one's means. I guess Bill Gates, Michael Dell and all those of their ilk are underachievers. I would also add that many of the wealthy elite knew that they would never achieve their goals without drive, motivation, ambition, self-restraint and financial self-discipline.

My own anecdotal experiences prove that without ambition a high IQ is a waste of intelligence. Couple high IQ with an ambitious person who creates things, produces more than they consume; couples that with financial restraint and discipline, and you have the key to fiancial success.

Isn't it ironic that our schools do not teach financial literacy. If one is lucky enough to happen upon a finance course in college and not drop it, but implement what they were taught, I believe there would be even more high net worth individuals and more people who could reconcile their check book and calculate loan amounts which would protect them from predatory quasi-legitimate businesspersons.

Many Fortune 500 CEO's do not possess MBA's. True leaders are made by life's experiences and challenges which forge a person's character and desire (amibition). Education alone does not guarantee that a person will be successful from an economic perspective. Education provides the tools necessary for success; but the individual must use the tools properly and practice what they were taught. They must also learn to live within their means, which takes financial discipline. Financial discipline is not easily mastered as evidenced by many surveys which bear this out.

Perhaps the study should focus on discovering the one common trait that binds all high net worth individuals together? By focusing on IQ as a determinant of financial success is analogous to creating a drug compound an then searching for the malady that it will ameliorate.

I can calculate the movement of the stars, but NOT the madness of men." — Sir Isaac Newton, after losing a fortune (£20,000) in the bubble.

One does not need to understand complex computation in order to be financially successful. I would posit that the more removed a person is from his or her fellow human, the less likely it is that they will achieve success.

Sir Isaac Newton understood this after losing a fortune. Had he understood the psychology of man and the psychology of the "madness of crowds," he would have avoided losing a fortune. Had he looked prudently and skeptically at the high P/E of the South Sea Company, he would have never invested in the first place. That calculation required simple division.

Wealth also accelerates (sometimes dramatically) for people who choose to invest part of their income. As the amount of money allocated to investment increases and the return on the investment compounds, the total invested wealth accelerates. This is usually an insignificant factor in the first decade and a big one after 3 or 4 decades.

Randall, you are right on the mark.

The key to achieving long-term, self-sustaining wealth is to invest the difference between one's income and cost of living. It's that simple.

Investing in equities with high returns on equity, over a long period of time, and reinvesting dividends and interest to enhance the compounding will inevitably allow a person to supplant their income with income generated from investments.

Living below one's means and investing the difference will create wealth. Doing the opposite will result in poverty.

When asked about the most powerful force in the universe, Einstein aptly stated ..."compound interest".

Robert Carl,

Underachievement is not so simply measured as counting degrees. Some of the most important figures in all of history did not hold college degrees. The importance of a diploma is a matter of present day custom and relates to success in ways that depend on the nature of career path. If you want to be a physician or lawyer, you must follow the prescribed educational path or you will not be employed. If you want to found the most successful software company in the world, a degree is not required. When "success" was measured by the researchers at Vanderbilt (see the SMPY longitudinal study started by Julian Stanley and now carried on at Vanderbilt), they understood that different measures would be required for different situations. They settled on three: income, number of patents issued, and age at tenure.

Also related to success--the brain. Neubauer presented a paper in 2005 titled: "Neuroscientific explorations of human intelligence and related constructs." His comments included the observation that underachievement among the gifted is a greater problem for males than females (2:1 vs. 3:1). He attempted to detect this phenomenon via electroencephalography using verbal and figural tasks. Underachievers showed the lowest activation (highest efficiency) of all groups. [Does this raise the question of whether or not underachievement is resistant to external remedies?]

As for anecdotal experiences, how do they "prove" anything? They may confirm what you want to believe, but human behavior is not about individual observations; it only about those things that can be determined by statistical methods. Individuals can fall very far from the mean and can convince themselves that they are "typical" when they are not.

I agree that "financial literacy" should be taught, in the format of economics and that it should be taught in high school. One of the primary reasons for teaching economics is to prepare students to become voters. Much of what our legislators do relates directly to implementing economic policy. If we elect people who want to pursue unworkable policies, we do ourselves a serious disservice. As for "finance" as a course, I would agree, depending on the approach taken.

"Perhaps the study should focus on discovering the one common trait that binds all high net worth individuals together?" Yes, but that has already been done. The common trait is intelligence. That does not tell us that intelligence guarantees success any more than hard work guarantees success, but it is an important common trait. The data showed that trait, but Zagorsky elected to "correct" the data and in so doing, he eliminated the covariants.

"By focusing on IQ as a determinant of financial success is analogous to creating a drug compound an then searching for the malady that it will ameliorate." No, it is not. There was no attempt to show that intelligence was a "determinant." The question being pursued was one of whether there is or is not a correlation between intelligence and wealth. There is and the data show it. A correlation is not deterministic as most readers here presumably know.

Underachievement is not so simply measured as counting degrees. Some of the most important figures in all of history did not hold college degrees

Morgan, I was being facetious in my commentary regarding Michael Dell and Bill Gates. It is my belief that a certain type of intelligence aka IQ coupled with action, desire, motivation, ambition, vision, foresight, dedication, persistence, pragmatism, willingness to take calculated risk and the ability to calculate the risk/reward ratio for risk taken, are traits of the financially successful. What I was saying was that I believe that their are different types of intelligence that may or may not be manifested by IQ tests.

A person may be a musical savant but also be a dull normal when it comes to auto repair. It may be possible for someone to exhibit latent intelligence in a particular area due to lack of exposure to that area of knowledge simply due to socio-economic reasons.

Morgan:
One of the primary reasons for teaching economics is to prepare students to become voters. Much of what our legislators do relates directly to implementing economic policy

If this is true then we are very lucky that few people exercise their right to vote. Since only about 25% of all high school grads go on to college; even if all of them take the "dismal science of economic divination" that does not represent a populist majority. I hardly believe that high schools deliberately plan to teach economics simply to educate the students when it comes time to vote. The politicians may pander to the voters' pecuniary interests; but for the most part most presidential elections are won or lost because of how the voters feel viscerally and anecdotally about their own personal financial circumstance.

I would also argue that most college students who study economics do so as an elective (macro/micro) and are done with it. They do not learn about time value of money, capital budget processes, determining equity or bond valuations in either of the fundamental and rudimentary economics courses. As for high school students, economics is an elective. So if the administration is smart enough to actually include economics curricula on their agenda in order to influence future voting behavior; I find that hard to believe.

This argument is analogous to one made by a rather recalcitrant and obdurate co-worker who believes that intelligence is related to the size of one's brain. I guess if that were fact, those who suffer from small-brain syndrome should just give up right from the start and those with large-brain syndrome should go sit on the beach since they will absorb information via the ether through osmosis.

Robert,

It's funny because your coworker is right. Brain volume does have a positive correlation with intelligence.

As brain volume measurements have become more technically sophisticated, the correlations to IQ have steadily increased. Using structural MRI to measure total brain volume, the correlation is .40. Some studies have produced significantly higher numbers for men. When the method of correlated vectors is applied, the correlation is 0.65. When only cognitive centers (specified by their Broadman numbers) are considered, the correlation is 0.70.

It is well known that mean group intelligence correlates with latitude and with lowest winter temperatures. It follows that brain volume also correlates with latitude:
The regression equation is: cranial capacity = 2.5 cm × (degrees latitude)+ 1257.3 cm

It's funny because your coworker is right. Brain volume does have a positive correlation with intelligence.

Morgan:
It's also funny that my phrenologist friend believes in eugenics as well. I think he may have also believed that "Hitler" was onto something. So if a=b and a=c then a=c? So since all large skulled males exhibit superior intelligence, and since they all come from the northern climes; how do you explain One stone, I mean, Einstein, or Fermi, Galen, the Egyptians (algebra), Greeks (Euclidean Geometry, Logic, Philosophy, Biology), Indians (Zero)? How do you explain that the Chinese had the printing press 500 years before Europe, they developed gun powder, paper currency, and almost bankrupted Europe by sigphoning off most of the continent's gold as a result of a trade surplus that was financed with Europe's gold?

BTW: My co-worker is a high school grad with quasi-intellectual propensities, a touch of egocentric megalomania coupled with a predilection towards marginilization of his fellow man. He thought that he was the smartest guy in the room with the highest net worth. Alas, when he found out otherwise, he was much perplexed and became apoplectic. This syndrome affects many who are taught to follow rather than lead and who believe that conventional wisdom is always correct. Unfortunately conventional wisdom is just that, conventional and leads the many who subscribe to that school of thought, over a cliff like the lemmings who preceded them.

I will go with a person of passion, realism, and action over an indolent intellectual any day.

My IQ is over 133 and my Net Worth is over $2m and I am not a professional person. It is my belief which I stated earlier and will state yet again...In order for someone to become wealthy as measured by Net net worth (excluding home, cars etc.), one must live below their means and invest the difference. Otherwise, when one reaches retirement age, they will be headed straight to the bread line.

It is well known that mean group intelligence correlates with latitude and with lowest winter temperatures. It follows that brain volume also correlates with latitude:
The regression equation is: cranial capacity = 2.5 cm × (degrees latitude)+ 1257.3 cm

Morgan:

What is the correlation with suicide? Which seems to be inversely related to ambient temperature, diurnal length, and directly correlated with higher latitudes? Intelligent and suicidal does not seem to make for a healthy individual? I could support this argument with facts but I think we all know that suicide rates in the northern climes is greater than in the southern climes.

It is well known that mean group intelligence correlates with latitude and with lowest winter temperatures.

Morgan:
Could it also be that during the long winter night, the only thing to do is read? I am assuming that food, water and other life essentials (Maslowe's hierarchies)and of course books, are in abundant supply and stowed away for the winter. That should increase a person's intelligence one would think; given that they have nothing else to do with their time.

Morgan wrote: "It is well known that mean group intelligence correlates with latitude and with lowest winter temperatures."

Robert Carl wrote: "Could it also be that during the long winter night, the only thing to do is read? I am assuming that food, water and other life essentials (Maslowe's hierarchies)and of course books, are in abundant supply and stowed away for the winter. That should increase a person's intelligence one would think; given that they have nothing else to do with their time."

The latitude correlation applies at all latitudes, including the vast range where darkness is not extended to extreme length. Reading has no causative impact on g. In fact, g is entirely biological and is not altered by family environment, social structures, or education.

Reading, like education, certainly correlates positively with intelligence, but as a consequence, not a cause.

Robert Carl wrote: "So since all large skulled males exhibit superior intelligence, "

Who told you that? The term "all" is incompatible with statistical observations. There is one notable exception to the brain volume relationship--Eskimos. The reasons for this exception are necessarily open to speculation, but are discussed by Richard Lynn in his book Race Differences in Intelligence: An Evolutionary Analysis.

"... and since they all come from the northern climes; how do you explain One stone, I mean, Einstein, or Fermi, Galen, the Egyptians (algebra), Greeks (Euclidean Geometry, Logic, Philosophy, Biology), Indians (Zero)?"

Have you ever studies statistics? Certainly you know that when there are multiple variables, it is necessary to use regression analysis (or other statistical techniques) and that single data points do not invalidate any findings of correlation. In the case of Einstein, you cited a person who had a brain structure that has been estimated to be on the order of one in a billion in rarity. He had a high ratio of glial cells to neurons. Glial cells ferry calcium to surrounding neurons and control messages around the brain. I presume you knew that already, but wanted to use a single datum as if it applied to an entire spectrum. It does not.

The performance of a race of people is not reflected by the discovery of a single individual. This goes back to the statistical nature of biological measurements.

Robert Carl -- "How do you explain that the Chinese had the printing press 500 years before Europe, they developed gun powder, paper currency, and almost bankrupted Europe by sigphoning off most of the continent's gold as a result of a trade surplus that was financed with Europe's gold?"

The mean IQ of modern Chinese is higher than that of Western Europeans and may be somewhat depressed with respect to other Mongoloids because of nutritional deficits. Lynn estimated that the mean (minus nutritional problems) is 109.

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