The wealth-IQ perception disconnect (why being wealthy seems so much rarer than being smart)

Most people if surveyed will vastly overestimate the rarity and difficulty of being a millionaire and underestimate the rarity of high IQ.

Online, Mensa-level IQs are a dime a dozen is seems, but, astonishingly, having $1 million dollars net worth is more common by a factor by a factor of 5 than merely having an IQ of 132, which is the Mensa cutoff.

As a caveat, this is average household net worth, which is inflated by ultra-wealthy outliers on the far-right tail of the distribution. The median is somewhere in the ballpark of $200,000 for the 50-60-year-old age bracket.

But, still, approximately 11 million American households, or about 10% of all households, have a net worth of at least $1 million. This is even more surprising when one factors in large populations of generally low-income groups such as Blacks and Hispanics. It’s not just wealth wealthy immigrants either: they are too small of a percentage of the population.

In 1996, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” by Thomas J. Stanley, was a big deal when it was published, and at the time $1 million was still a relatively uncommon amount of wealth. Not anymore, even in spite of media headlines about poverty and college-educated baristas, as well as Covid, the 2008 crisis, the 2000-2003 market crash, and so on. It goes to show the disconnect between the media narrative and reality.

The surge in wealth closely tracks the rise of the stock market. Indeed, the number of millionaire households nearly doubled from the 2008 lows, from 6 million to 11 million today. The U.S. information technology boom, starting around 2008 or so, also contributed to the inflation of the right-side of the tail too. The Nasdaq 100, by a large margin, is the best performing stock index in the world since 2008.

Even IQs above 145 seem commonplace, especially on Reddit and Hacker News, yet this is as uncommon as earning $1,000,000/year (top 0.3% of household income), which seems like an impossibly large amount of money. An IQ exceeding 145 is very rare, but it just seems much more common than predicted statistically.

Part of this discrepancy between perception vs. reality comes from how the wealthy take great pains to downplay their wealth, wearing drab clothes and driving average-looking cars, whereas everyone, regardless of IQ, tries to play-up their intelligence. It’s not that hard for someone with an IQ of 110, the so-called mid-wit, with some effort to pass for having a much higher IQ (this is pretty much what actors do).

Also, high-IQ people tend to have much more visibility than even wealthy but average-IQ people, such as most actors and athletes. Harvard graduate Matthew Yglesias’ Substack blog gets vastly more views and coverage than probably the vast majority of the opinions of entertainers, save for someone like Lebron James. Even talk radio and TV personalities, when they are not on air, do not have the same sort of persistent relevance as top bloggers such as Scott Alexander do. Tucker Carlson’s show is popular by cable TV standards, but if not for his show, how many people would care about his opinions? Probably far fewer than you would imagine despite his popularity now. Jordan Peterson is as big and relevant as ever as a public intellectual, whose opinions regularly make headlines, but does anyone still care about Jay Leno after his show ended in 2015? Hardly.

And pop culture and media also plays a role by equating wealth with materialism, such as mansions and Rolls Royces, so the absence of those things even in very wealthy cities, means it’s easy to underestimate of fail to appreciate how much wealth there actually is.

2 comments

  1. Andy Warhol said/wrote somewhere he would like to sell stars’ underwear for I think $10 clean and $15 used.

    To another commenter, I disagree concerning lawyers. You either have lawyers and rule of law or you have gangster rule and the rich buying judgement.

  2. On a related now, for how long has the word “millionaire” had roughly the same meaning it has now, and much much has the value of $1M shrunk by in that time, due to inflation? The word millionaire is a lot stickier than the purchasing power of a million dollars!

    Maybe the IQ scale should be indexed to the dollar 😉

Leave a comment

Your email address will not be published.