SMART MONEY: Intelligence may help you earn more money, but it apparently doesn't help you keep it.
© ISTOCKPHOTO.COM/LUKE DANIEK

Just because you are smart doesn't mean you can balance a checkbook, or tackle any of the other tasks that might make you wealthy. A detailed study of 7,000-plus Americans followed since their teen years in the late 1970s reveals that intelligence provides more earning power but not necessarily more accumulated wealth. "The smarter you are, the more income you have," explains economist Jay Zagorsky of Ohio State University, who analyzed the data. "For wealth, there is no relationship."

Zagorsky defines wealth as "the difference between a person's assets and liabilities." So, wealth is income plus home value plus investments (plus fun, valuable stuff like stamp collections) minus mortgages, credit card debt and other debts. In 2004 a collection of 7,403 30-something baby boomers answered questions about their financial status, including whether they had ever maxed out any of their credit cards, fallen behind in bill payments or declared bankruptcy.

Roughly 9 percent of these folks reported credit cards charged to the limit, 18 percent had missed at least one bill payment and more than 13 percent had filed for some form of bankruptcy. This same group also participated in an IQ test in 1980 as part of their enrollment in the National Longitudinal Survey of Youth. The Armed Services Vocational Aptitude Battery consists of 10 tests, four of which—word knowledge, paragraph comprehension, math knowledge and arithmetic reasoning—the U.S. Department of Defense uses to assess the intelligence of recruits.

Zagorsky used these intelligence scores and compared them with financial data collected in 2004. For each IQ point, there was a rise in income of between $202 and $616 annually. (For example, a person with an IQ of 130 earns between $6,000 and $18,500 more per year than a peer of lesser intelligence.) But this higher yearly income did not translate into higher wealth. In fact, people with slightly above average intelligence (105 IQ score) had an average net worth higher than those just a bit smarter (110 IQ). "There are some very smart people who get into financial difficulties," Zagorsky notes. "Even smart people don't save."

When Zagorsky controlled for variables like race, education, job status and even factors like smoking, the gap between IQ and wealth remained the same. "Why don't smart people do financially better is the next question to answer," he says, adding that he is completing a follow-up study examining the relationship between intelligence and saving rates. And the probability of missing a payment actually increases with IQ score, he notes.

Explanations are lacking, though Zagorsky speculates it could be anything from people with higher IQs having a better memory for missed payments or a predilection for financial risk, among other possibilities. One thing is clear, however: most of the participants showed financial savvy from an early age, agreeing to participate in the armed forces test in exchange for $50.

The bottom line: "If you're an individual with relatively low intelligence, you shouldn't really believe that you're handicapped in achieving wealth," Zagorsky says. "Similarly, if you're intelligent, you shouldn't think you have an advantage in living the rich life."