Friday, December 28, 2007

Misguided Wealth Correlations

I have stumbled upon a few articles lately that attempt to correlate wealth with other human traits/factors. Any time generalizations like these are made, there should be some data to back it up. If I ever find some I will post it! In the following, I examine a couple of the findings.

The Marriage Correlation
Many folks seem to be convinced that wealth and marriage are closely related. That’s interesting, since the majority of marriages end and the root cause cited most often is money. If they were better off married, with more money than when they were single, why is money the reason for divorce?

As for economy of scale, I think it's possible for two people to live together more economically than single, but in reality that does not happen. People tend to do more things together, go out more, entertain more, buy more, buy bigger houses, more cars, boats, compete with the Jones’ etc. when they are a couple.

James of the DINKS even goes so far as to say that single people are losers, so they have less money. Note, that James himself is recently married, so evidently he was a loser last year, but not this year!

In reality, most people tend to gravitate towards others that have similar social and educational backgrounds. Nobody wants to settle for a loser, but then most can’t stand the thought of being single, so losers do get married. And they usually get married to other losers. Staying single in this society is not by default, it is a choice to not settle.

The Intelligence Non-Correlation
Another article concerning wealth entitled “Brains no requirement for wealth
was authored by Jay Zagorsky, a research scientist at Ohio State University 's Center for Human Resource Research. In the article, he makes several bold statements that there is no correlation between intelligence and wealth. He is quoted as saying “Your IQ has really no relationship to your wealth.”

Its tough not to be skeptical. How many geniuses are lined up at the soup kitchens? Unless the money was inherited or won, people with money seem to be pretty good about keeping their money and making more.

Even when someone with a low IQ wins money, it doesn’t take long for him to lose it – lotteries are a good example. There are numerous stories about lottery winners losing it all within a year or two. If wealth and IQ are not related, these folks should have a better track record for maintaining their wealth.

But the real kicker was the way Zagorsky measures wealth. Zagorsky said you only have to look in the parking lots of the nation's universities to see that intelligence and wealth are not necessarily linked.

“Professors tend to be very smart people,” he said. “But if you look at university parking lots, you don't see a lot of Rolls Royces, Porsches or other very expensive cars. Instead you see a lot of old, low-value vehicles.”

In my opinion, any conclusions that Zagorsky states need to be evaluated closely, given that he is looking in parking lots to determine wealth!!!!

Intelligent people do not always drive Rolls Royces. In fact, that would be extremely rare. The wealthiest people that I know, drive conservative, high mileage, low value vehicles because they are smart enough to know that vehicles depreciate quickly and are not a good investment.

That’s just basic financial sense that does not require a research grant to validate.

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