We all know some guy down the street who worked for years for a crummy paycheck, and ended up with an impressive pile of money. And then there's the other character, maybe you, who made a ton of money but ended up with considerably less than the dolt down the street.
How can that be? Why do some people end up fairly wealthy, even though they never had a high-paying job, and others end up with little, even though they were near the top of the financial food chain?
One explanation seems to have been ruled out in a recent study from Ohio State University. The one who finished with an impressive portfolio wasn't necessarily all that smart. And the one who ended up with relatively little wasn't all that dumb. Intelligence, according to this major study, has little to do with the accumulation of personal wealth.
"There is no relationship between IQ scores and net wealth," said economist Jay Zagorsky, who conducted the study. Furthermore, very smart people tend to get into as much financial difficulty, with maxed-out credit cards and missed car payments, as those of us who are less clever.
"That was shocking to me," said Zagorsky, who has spent years studying how people acquire personal wealth.
Zagorsky had an extraordinary database for his research, published in the journal Intelligence. Ohio State's Center for Human Resource Research has been keeping tabs on nearly 10,000 persons for more than a quarter of a century. The participants were interviewed first in 1979, and repeatedly since. They were teenagers when the project began, and they were given a series of tests, including a widely used test for intelligence.
They are in their 40s now, young baby boomers who are caught up in making a living, raising kids, paying bills and all that good stuff. In 2004 Zagorsky submitted a number of questions concerning personal wealth and finances to 7,403 Americans who are still participating in the project. And then he looked for a correlation between the answers he got and IQ scores.
The results confirmed one widely held view. The smarter you are, the more money you make. In fact, there's a fairly precise figure for it.
"Each point increase in IQ test scores is associated with $202 to $616 more income per year," the study contends. "This means the average income difference between a person with an IQ score in the normal range (100) and someone in the top 2 percent of society (130) is currently between $6,000 and $18,500 per year."
That wasn't a surprise, Zagorsky said, because lots of other studies have reached similar conclusions.
But here's the odd part. Even though they make more money, the smart ones don't end up with more wealth, defined as "the difference between a person's assets and liabilities."
Zagorsky thinks that's the first time that has been scientifically documented, and that's not all his study reveals.
He wanted to know if smart folks got into financial difficulty as often as the less gifted, at least in terms of intelligence. So he asked three fundamental questions. Do you have at least one credit card that is maxed out, have you missed a payment or have you been late on least two consecutive payments during the last five years, and have either you or your spouse ever declared bankruptcy?
The results are erratic across all three questions, but they suggest that persons with a lower IQ have a little more difficulty in each of those areas. But smarter persons also get into trouble. For example, 17.5 percent of those with an IQ of 75 or below missed payments, compared to 11.8 percent of those with an IQ above 125.
That, of course, can be a transient situation, unlike the gradual accumulation of personal wealth. Is there anyone out there who has never encountered financial difficulties for at least a few weeks?
Left unanswered is this basic question: If intelligence is irrelevant, why do some people end up with more money than others? Some economists have suggested the most likely driver behind the accumulation of wealth is personality. Some are penny pinchers. Some are big spenders.
Most people, Zagorsky said, are lousy savers. Their net worth consists mainly of equity in their homes, and cars on which they've made most of the payments.
"You can earn at any level, high, low or medium," he said. "You can spend at any level. There are some people who are relatively low on the amount of income, but still manage to save every month."
But his research shows that most folks don't have much in the way of personal savings. So what's a body to do? Save more, spend less, end up with a golden egg. That's sort of the financial equivalent of that formula that leaves so many of us overweight, exercise more, eat less.
Easy to say, sometimes hard to do. But Zagorsky offers a couple of tips to help folks at least get on the right track.
"Step No. 1 is really sit down and figure out where you are," he said.
Most people, he added, are way off when they come up with hard figures that reflect their net worth. And here's the good part. Most of us are worth more than we think we are. A lot more.
"If you and I sat down and actually calculated it all up, there would be very, very large differences," he said. "Seventy percent of all people are richer than they think."
On average, he said, people are off by "62 cents for every dollar of wealth they actually have."
I'm no economist, but that sounds like most of us are worth a third more than we think we are.
So that ought to make "step No. 2" a lot easier. "Once you figure out where you are, make sure you actually do some savings each year. As long as you are saving some money you are moving toward that final goal with slow and steady progress."
So with all his expertise, Zagorsky ought to be worth a bundle, right? He's a college professor, and they take home a nice paycheck every month, and he understands economics. So how's he doing?
"We're not poor, but we're not wealthy," he concedes.
That's a pretty smart answer. And he probably exercises more and eats less.