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Wednesday, April 25, 2007

Correlation Between IQ and Net Worth (Wealth)

Just saw a post If You're So Dumb, Why Aren't You Rich? that cited an article in the journal Intelligence.

It shows the correlation between IQ and Net Worth. Surprisingly there isn't one. Can that be right?

11 comments:

melita said...

Hi Tony

Yes it can be correct :) Psychological studies tell us (I can give you bibliographical details if you'd like to read them yourself) that IQ is simply an indicator of what someone could achieve using their intelligence.

It does not mean that people will actually use it, or that they will use it specifically to increase their income or net worth. There are many other factors that have an impact on 'success' (however you measure or define that)such as a person's ability to persevere with things they find challenging, support from family and friends, educational level (not necessarily defined by IQ), their interests and passions, their own definitions of success, etc.

It is actually a largely 'western' viewpoint that IQ could be a predictor for success. Our cultures often tend to promote the view that success is largely due to talent or intelligence and to a lesser extent perserverance.

Interestingly Asian cultures usually see things the opposite way around - they view success as largely due to perseverence rather than talent or intelligence.

As an adult educator, what stands out for me is that IQ very rarely seems to predict success for adult learners. Those learners who have learned not to give up when things get difficult are often the ones who succeed in learning, and will also probably do so in life.

Thanks for the great discussion topics!

Melita :)

Karyn Romeis said...

I don't set much store by IQs. The testing mechanism is flawed for a start, and it tests such a restricted range of things. I far prefer the Gardner notion of multiple intelligences. My own IQ had to be retested 3 times before the results became believable. My elder son's IQ is supposedly lower than mine, but he is way brighter than I am.

And absolutely, absolutely, IQ will not directly correlate to net worth. I can't see any reason why it should. My view is that the brighter people are, the more likely they are to consider other things more important than money. Heck even I've figured that one out, and I'm not that smart!-)

Anonymous said...

The institutionalized mentally retarded and the homeless have net worths of $0 (maybe $10 if the shopping cart is full of aluminum cans). Are they better off than a spine surgeon who makes $1,000,000 year and spends it all and still has some consumer and student loan debt, which leaves hime with a negative net worth?

Tom said...

IQ is not the same as motivation. A very smart person may have no interest in money or status. In fact, many of the trappings of success, or the steps needed to acquire them, may not be mentally engaging enough for highly intelligent people to pursue them.

In the military, where the path to success is a lot more clear than in other professions, the connection between IQ and promotion isn't a clear one-to-one relationship. Officers are smarter than the average enlisted person, but not by a huge margin. I've heard people in uniform speculate that, for the promotion track, it's important to be smart enough to meet the requirements, but not so smart that many aspects of the job become insufferably dull.

Tony Karrer said...

From the comments, I'm having a hard time telling if this was a surprise to other people or not. When I hire people, I certainly look for smarts because its somewhat like height in basketball - you can't teach it.

But you also can't teach drive, desire for quality and a bunch of other aspects that we also use during selection. So, I guess maybe I shouldn't have been surprised, but I was.

Karyn Romeis said...

Ah, Tony - but there is a big difference between smarts and IQ! One of my closest friends in high school was supposed to be one of the cleverest girls in the school. She went on to rise to great heights in her field. That said, I never considered her even remotely smart... I still don't.

If all you were after was IQ, you could find that on a certificate, exam results, etc. The reason you have to interview to assess it is because "smarts" is an illusive, intangible quality that can't be assessed any other way.

Tom said...

I have a Ph.D., and I feel like a blithering idiot, most days.

steve said...

No, it is not correct, and the data cited in the article do not come remotely close to supporting the conclusion asserted. To be specific, the author has truncated his scatter plot at such a low value ($230,000 net worth) that he has in fact excluded every single individual who would be considered "rich" (his term) from the sample. In brief, the author is disingenuous (to be polite), an incompetent, or both, most likely both.

Incidentally the comments made by others here to the effect that there are other factors besides IQ that contribute to success (i.e. being "rich") are of course correct, but not really relevant to the question at hand, which is whether or not IQ is positively correlated with being rich, which of course it is. High IQ alone obviously does not suffice, but for someone who has the other factors - drive, focus, etc. - high intelligence, as reflected by IQ, definitely helps.

I know some people who keep up on the scientific literature pertaining to psychometrics, statistical correlations between IQ and other factors; if you are really interested, I could put you in touch with them.

Steve Coy

Tony Karrer said...

Steve, that's interesting. If there happens to be a contrary study that I could update the post to point to - that would be good to know.

steve said...

Tony Karrer said...

Steve, that's interesting. If there happens to be a contrary study that I could update the post to point to - that would be good to know.

*************************************

I tried to reply earlier, but apparently I screwed it up.

Here's a commentary on the analysis underlying the article you mentioned:

http://www.aleph.se/andart/archives/2007/04/cubic_terms_make_smart_people_bankrupt.html

In a separate email I sent you a copy of the first several pages of the paper, including figures.

And finally, here are some more detailed comments I posted on another list:

Re: "Your IQ has really no relationship to your wealth.":

To put it politely, in my opinion the evidence presented does not
justify the conclusions expressed. As the author points out, the
essential information content of the article is contained in two
scatter plots, or actually only one, since only one pertains to wealth
(net worth) whereas the other pertains to income. In the scatter
plot for wealth, the author has chosen truncated the distribution at a
net worth of $230000 with the explanation that he didn't want the
"dots to blur together". In so doing, he has excluded *every single
individual* who would be considered even marginally "rich" by American
standards, that being the specific term he chose to use in his title
("Do you have to be smart to be rich? ..."). According to his own
figures the mean and standard deviation for net worth within his
sample were $145,837 and $447,814 respectively. Ordinarily, when
using a scatter plot to show a distribution one would use a range that
extended at least *one* standard deviation above the mean at a bare
minimum, and usually at least two or three. Why didn't the author do
so in this case? One possibility is that the standard deviation
quoted is simply wrong - it does seem a bit high, based on the part of
the distribution shown - but then again, its also possible that in the
part of the distribution the author chose not to show us, there are a
relatively small number of individuals with very high net worths, high
enough, despite their small numbers, to pull up the standard deviation
to the figure cited - i.e. "the rich". Certainly there is such a
group within the general population, whether or not they are
represented in his sample. To answer the titular question "do you
have to be smart to be rich?" we'd need to look at the IQ distribution
for *that* group. Instead, he has, according to his own explanation,
equated the term "rich" with having a net worth no less than $100,000
and no more than $230,000 for an american in their mid-40's. That's
not ricjh - in fact, at the lower cutoff of $100,000 it's *below
average*, again according to his own figures. Perhaps he should
re-title his paper "do you have to be smart to have a below average
net worth?", but then he probably wouldn't have gotten written up in
the popular press.

Anonymous said...

The graph doesn't demonstrate a lack of correlation between net worth and IQ. The scale is flawed: It goes up to only $230,000.
It is not controlled for age.
What is the distribution of IQ among those age 55 with a net worth in excess of 1 million?
It does seem to indicate that those lower IQ's make less money.