A US study reportedly shows that people with high IQs are just as likely to get into financial difficulties as those with average or below average IQs. I’m glad to know that just because I haven’t made my first million yet, this doesn’t mean I’m dumb…
The study confirmed previous research which has shown that smarter people tend to earn more money, but pointed out there is a difference between high pay and overall wealth.
“The average income difference between a person with an IQ score in the normal range (100) and someone in the top two per cent of society (130) is currently between $US6,000 ($A7,200) and $US18,500 ($A22,250) per year,” it said.
“But when it came to total wealth and the likelihood of financial difficulties, people of below average and average intelligence did just fine when compared to the super-intelligent.”
An irregular pattern of total wealth as well as financial distress levels – such as maxed out credit cards, bankruptcy and missing bill payments – emerged among the various degrees of intelligence, the study said.
My observation would be that knowing how to handle money has nothing to do with intelligence, and everything to do with whether you are the kind of person who likes to face up to problems, or whether you just like to ignore them.
Financial problems sometimes arise through misfortune (eg, an illness, a redundancy, a marriage break-up). There’s not much you can do about that. But other times, I think financial problems arise because people just don’t want to think through the consequences of their actions. They don’t imagine that disaster could ever happen to them – financial ruin is something which happens to other people. They overextend themselves with a huge loan, not thinking about what will happen if interest rates rise. They buy that expensive plasma television using a credit card, without thinking that they’re just deferring payment of the television – without thinking that if they don’t have the money to pay for it this month, what’s going to be different about next month or the month after? It’s so easy to spend on a credit card – all that lovely available credit there, waiting to be used…When I first got a credit card in my 20s, I fell into the credit card trap myself.
I met with some of my old colleagues today. At one point we all worked in banking litigation. We discussed again the “head in the sand” phenomenon, and agreed that this seemed to pervade the behaviour of many of those who defaulted on loans.
As I’ve discussed before, there may be a positive side to having unrealistic expectations – I suspect many entrepreneurs succeed because they do not see risks as other people do, and forge ahead regardless. However, this is also a reason why some entrepreneurs end up in trouble – they keep going when any prudent person would wind up the business.
I’m no psychologist, but I wonder if there’s a reason for this function of the human brain which makes us put our head in the sand and pretend there is not a problem. I guess it has evolved as a necessary personality trait because it helps humans survive against the odds in terrible situations. But it also has its downsides when it means people deny that there is a problem, and that problem desperately needs to be dealt with.