The Stupid Millionaire Next Door

Greg Mankiw has a great blog post about income and wealth accumulation.

Key point:  Smarter people earn more income, but do not, on average, end up with more wealth.


Wealth is the value of one’s assets, which comes from saving.  (For those of you not familiar with the concept, saving is when you spend less than you earn.  If you can imagine that.)
There are lots of lower income people who save a lot, ending up with more assets than their smarty-pants neighbors.

However, we need to get philosophical.  The point of life is (probably) not accumulating the most wealth.  But then again, spending money is (probably) not the point of life, either.

This philosophical discussion doesn’t seem to be working.  Let’s go back to economics.  If you want to accumulate wealth, you can, even if you are not a smart, high-earning person.  And just because you’re smart, don’t assume that you won’t be eating dog food in your retirement.

A final surprising note: Mankiw’s blog post says nothing about investment returns.  I would expect that higher-IQ, higher-earning people would also have better investment returns, offsetting their high-spending ways.  If that is true, the returns are not high enough to offset a taste for German sports cars.