Monday, May 7, 2007

you don’t have to be smart to be wealthy

From the Wall Street Journal's Robert Frank's blog, Wealth Report:

Aren’t today’s rich more likely to have higher IQs than the general population?

Apparently not. At least not according to a new study by Jay Zagorsky, a research scientist at the Ohio State University’s Center for Human Resource Research, which found that the wealthy aren’t more likely to have higher IQs than the general population.

Yet the most-fascinating part of the study is the disconnect between wealth and income as it relates to IQ. Wealth and income are fundamentally different measures: Someone can have a high income and low accumulated wealth (if they don’t save) or they can have a high net worth and low income (if their wealth is tied up in a business or illiquid assets, for instance).

Previous studies have found a tight link between people’s intelligence and incomes: i.e., smarter people are more likely to have higher incomes. In Mr. Zagorsky’s research, each point increase in IQ scores was associated with an additional $202 to $616 of income per year.

But the link breaks down with wealth.

Why? Mr. Zagorsky’s not sure. One reason, he says, may be that smart people are just as likely as others to make bad financial decisions with their money, like taking on too much debt or failing to save. So just because people have high incomes and high intelligence doesn’t mean they are better at managing their money.

This is entirely in tune with simple math of compound interest shared in any financial planning course. Regular saving over a long period of time can make even people with modest incomes millionaires. This is also the implication of the research in The Millionaire Next Door. Anyone can build wealth.

Having a higher income or a higher IQ does not make someone less susceptible to credit card debt and overspending.

It doesn't take brains or special knowledge to build wealth. Do not believe the lie that it does. It takes self-discipline and a plan. No, I take that back. I can show you how to do it even if you don't have a lot of self-discipline.

It just takes a plan.

Be blessed!

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