Where the money is and why Mensans don't have more
In spite of its colloquial title, this article is about the distribution of wealth and its tenuous relationship to the distribution of intelligence. The author was motivated to research the subject and report on it partly by the ubiquity of the title question, but more specifically by the emergence of a new Special Interest Group (SIG) in Mensa, the "Rich-M SIG."
Mensa requires that its members be in the top 2% in intelligence; the Rich-M SIG requires in addition, that its members be in the top 2% of wealth, by which they understand net worth, which is calculated by subtracting all personal (monetary) liabilities from total personal (monetary) assets. If your sole asset is your home, which has a fair market value of $100,000, and the bank holds a mortgage on it for $40,000, then your personal net worth is $100,000 minus $40,000 which is $60,000, and you don't qualify for Rich-M, which has a net worth requirement of $125,000 (1980). (Incidentally, even the figure of $125,000 only places one in the top five percent, as about $313,000 is the statistical marker for the top 2% - there was an error in the membership criterion.)
Nevertheless, there were 57 enrolled members in October, 1980, when the membership was polled. The median age was 46.4 (higher than the Mensa man), with a mean net worth of $670,814 (range $125,000 to $5,000,000), and a mean I.Q. of 147.7 (range 134 to 170). Males (76%) felt that $1,070,833 was required to be "rich", and females (24%) felt that $788,889 would be enough. The males felt that they would only have to increase their wealth about 40% to be "rich," but the females felt they would nearly have to double their current wealth to feel "rich."
There is a limited amount of statistical data available about wealth, obtained primarily by the government in connection with the Federal Estate Tax. For those handy with a calculator, the empirical equation for wealth distribution in 1979 was obtained as follows: Take net worth in $100,000; raise to the negative 3/2 power; multiply by 10. The result is the percentage having greater net worth. To correct to the current year, increase by 16% per year. The 16% per year accounts both for inflation and the increasing percentage of wealthy people.
Now that they have "made it" into a financial elite at least as exclusive as Mensa is intellectually, how hard will it be for our Rich-Ms to stay in the top 2%? They will have to increase their wealth by 16% x 313,000 = $50,000 every year to stay in. Then, suppose we allow them $50,000 per year after taxes for a "comfortable" life style (did I just hear Jackie O shriek?). In order to net $100,000 post tax, a single member (in a tax free state like Washington, say) will have to earn $226,290 to stay in the club. (Many of the members, particularly the females, are single.) If their entire net worth was invested, they would have to clear 85% return on equity to stay even. The obvious conclusion is that the same savvy that got them into Rich-M also has them thoroughly tax-sheltered! In fact, 67% made their money in real estate, 12% through owning their own business, with most of the remaining 21% professionals.Facetiously, if I.Q. were perfectly correlated with wealth, members of Mensa (I.Q. = 132) would be worth $313,000. Members of Intertel (I.Q. = 136) would be worth $520,000. Members of the International Society for Philosophical Enquiry or the Triple Nine Society (I.Q. = 148) would be worth $2,300,000. And members of the famed Four Sigma Society (I.Q. = 164) would each be wealthier than the Hunt Brothers. Whoopee!
Every year, The United States Trust, a small Eastern bank catering for approximately the top 2% of the rich (you must have $300,000 on account), issues a news release on the number of millionaires in each state; the press has a field day with this information. Interestingly, they report that in the state of Idaho about 3% of the population are millionaires -- a much higher percentage than the national average. This is believed to be due to the increase in the value of land and the large number of large landholders there. (Some are over 6'3"!) U.S. Trust handles every transaction individually in a mahogany-paneled office over tea, and (I suppose) crumpets. They have been known to provide every service for their rich clients, including finding lost dogs, tutoring children, and providing funeral arrangements.
In 1980, if my modest extrapolations are correct, there should have been between 10,000 and 20,000 individuals worth over $10,000,000. It should be noted that there is a great deal of ambiguity in the published statistics concerning the treatment of community property in computing wealth; generally speaking, if a husband and wife own $1,000,000 in community property, then neither is a millionaire. (In practice, the husband usually says that he is a millionaire.)
In my investing in real estate over the past 8 years [the 1970s] I have met a large number of millionaires and have been impressed by their obviously high level of intelligence. The Terman studies showed that salary increases up to about the level of 150 I. Q. and then declines slightly (presumably due to the fact that a large number of people at that level became relatively low-paid university professors). Studies of the correlation between parents' occupations and the I.Q. of children show a strong connection. But recent studies of success in life ("Who Gets Ahead") show a surprisingly small correlation between I.Q. and various (largely monetary) measures of success. Professor Johnson 0'Connor of Cornell found in the 40s that the single factor that was most predictive of success in Life (chief executive officer, judge, etc.) was a large vocabulary; this was considerably more predictive than I .Q. (As I was writing this I immediately started thinking of "large" words that I could start intercalating!)
Obviously, wealth tends to increase with age: those over 50 years old are eiqht times more likely to be millionaires than those under 50. Females under 51 are 50% more likely to be millionaires than are males under 50. For reasons obviously related to the method of calculating wealth, widows and widowers are nearly three tines more likely to be millionaires than the population at large. Single females are about half as likely as the population at large to be millionaires.Those in the top 1% of wealth own 20.7% of the assets of the United States (latest data available 1972), including 89.9% of trusts, 60% of bonds, 56.5% of corporate stock, 52.7% of debt instruments (mortgages, etc.), and only 15.1% of all real estate. Being rich dues not man that one never borrows. On a recent Rona Barrett special on "The Super-rich," Dallas financier Trammel Crow was asked if there was anything in the world that he wanted but could not have; he answered, "Unlimited credit!" The debt to equity percentage of the 1% of wealthiest people rose from 10.2% in 1958 to 14.3% in 1972.
The trend in investment among the wealthier citizens has been to get more into debt, out of equities, into debt instruments, into bonds, (until the recent bond debacles, I presume), and out of life insurance. In 1929 the top 1% owned 36.3% of America, but this was down to 20.7% by 1972. This would presumably mean that the "Lorenz curve," used to graphically display unfair distribution of wealth in any given country, is tending to become more fair in the United States.
You don't have to be smart to inherit wealth or (putatively) to marry into it. But it is hard to imagine many people accumulating a million dollars, say, with an I.Q. of 83: there are the complexities of taxes, annual reports, leverage, internal rates of return, loan presentations, etc., that a moron couldn't handle. It is my personal observation that most intelligent people are locked cut of the money game by their very ability in school - the present school system is heavily geared toward producing excellent employees and clock-punchers, not independent, selfstarting entrepreneurs and investors. Another observation is that only 65% of high school graduates with I.Q.s over 165 ever graduate from college: perhaps it is from the other 35% that we get a large share of cur wealthiest people.
Every time I hosted a Rotunda Futurism, or Real Estate SIG meeting I received vicious letters (from non-attendees in every case) complaining about the fact that all people are not equal in every way; I am expecting even more this time. The distribution of wealth is, by definition, not an egalitarian topic.
Ed was a certified child prodigy at age 3, and since then has been an opera singer, gandy dancer, carpenter, and NASA research scientist. He was (at the time of original publication) a consultant and real estate investor.
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