Are Millionaires Smarter Than the Rest of Us?
“The rich are different from you and me,” as the apocryphal F. Scott Fitzgerald quote goes. That might or might not be true, but a more pointed version of that question is making its way into post-election political discussion: Are the rich smarter than the rest of us?
The collective net worth of Donald Trump’s proposed Cabinet is more than $14 billion (so far), causing some to question how he can fill his administration with billionaires and still uphold his pledge to “drain the swamp” in Washington, D.C.
In a rally in Iowa last week, Trump defended his choices. “I want people that made a fortune,” he told supporters, saying he was choosing "some of the most successful people in the world.”
But is the ability to acquire wealth a reliable indicator of intelligence? Scientific research on the question has produced mixed results.
Part of the challenge is settling on a way to identify smart people. Jonathan Wai, a research scientist at the Duke University Talent Identification Program, found that the world’s wealthiest were more likely to attend a highly-regarded university or a prestigious graduate school. He acknowledged the limitations of using elite universities as a benchmark, since athletes and "legacy" students who don't meet the same academic criteria may be part of the student mix.
It does seem, in general, that smart people pull down fatter paychecks. Jay Zagorsky, an economist and research scientist at The Ohio State University, found that every additional point a person scored on an IQ test correlated with between roughly $200 and $600 a year in income. In other words, a person with an IQ of 130 would earn between $6,000 and $18,500 a year more than someone with an IQ of 100.
But Zagorsky also found that the same isn't true when it comes to wealth. “There seems to be no relationship between intelligence and net worth,” he said, because there are different factors at work.
“In general, businesses tend to want to hire smarter people and pay people more, but just because you have a higher income doesn’t mean that you’re more likely to save it or are better at building that wealth,” he said.
In fact, when Zagorsky charted IQ against people’s likelihood to have financial struggles like paying bills late, declaring bankruptcy and maxing out their credit cards, people with the highest IQs were more likely to have financial instability than those with just slightly above-average scores.
“One possibility is you believe you’re smart and you might be overconfident in your own abilities,” Zagorsky speculated.
While much of the research examining the wealth-intelligence link looks at how people earn money from income or investments, some of Donald Trump’s appointees inherited or married into their billions.
In a paper last year, Wai wrote that many of the world’s wealthiest benefit from familial largesse. “Highest average net worth appeared to be linked to inheritance, showing the wealthiest people also tended to not have been the ones to have earned their own way, even in part,” he said.
But Zagorsky said being born with the proverbial silver spoon was no golden ticket to sustained riches. “Many people who got their wealth by inheritance spent or lost about half of it,” he said. While this would still leave a multi-billionaire with plenty, “For the average person, inherited wealth is like winning the lottery,” Zagorsky said, and our mental tendency to view such “found money” as expendable keeps many from socking away a windfall.
“While it may certainly be true that some billionaires are very smart, my paper suggests that being a billionaire is not at all proof that you are smart,” said Moshe Levy, a professor in the school of business administration at The Hebrew University of Jerusalem, who studied whether luck or intellect was a bigger factor in being a successful financial investor.
“It is very difficult to differentiate between luck and skill,” he said. “We tend to underestimate the role of luck.” When he investment wealth distribution in detail, Levy found that the results looked like what researchers might expect if luck was the only factor at work.
“If differential talent would have also played a role, we would have found a distribution of wealth that is even more extreme,” he explained. “This suggests that luck, rather than talent, is the main driving force of wealth inequality among the rich.”
But a bigger problem with billionaire businesspeople making the jump to politics, according to Darrell West, vice president of governance studies at the Brookings Institution and author of Billionaires: Reflections on the Upper Crust, is one of temperament.
“Their governing record is quite mixed because many of these individual have great difficulty adapting to the public sector,” he said. “They get frustrated that other people won’t implement their ideas.”
What’s more, he cautioned that while billionaires in government can bring about changes, they might not be the type of changes the voting public expected — or wanted. “Many of these individuals are out of touch for ordinary people,” West said. “The change they want might not be good for the average person. They’ve spent most of their lives insulating themselves from the day to day annoyances that everybody else experiences.”