Financially successful people are often associated with high IQs. We believe that they naturally make better financial decisions as they excel in analytical thinking, logic, and problem-solving. However, is this truly so?
People are truly interested in what IQ scores they have. They often ask the question: how can I find out my IQ? Fortunately, you can easily take a test online and find out what score you have. After a couple of minutes, you can see whether your cognitive skills are average or high.
If your score is high, will it mean that you can thrive in trading or any other financial field? Let’s figure this out.
Understanding financial intelligence
It’s crucial to distinguish FQ from IQ. The latter measures general cognitive abilities. They include reasoning, problem-solving, and memory. FQ, on the other hand, is a combination of knowledge, discipline, emotional control, and experience in handling money.
While having a high IQ score, you might excel in understanding complex financial concepts. However, it doesn’t mean that you will make smart and wise financial choices. This is where behavioral finance plays a significant role.
The strengths of high IQ in financial decision-making
Better understanding of complex financial concepts
Gifted individuals can grasp complex financial theories and investment strategies with ease. All those intricate financial words and terms pose no difficulty for them to understand. At the same time, people with average scores may find it difficult to grasp concepts quickly. They might need more time to figure out intricate concepts.
In comparison with an average person, brilliant minds are better at:
- Analyzing data;
- Interpreting economic trends;
- Predicting market movements, and so on.
They certainly have an advantage. However, understanding complex terms doesn’t mean making smart financial choices.
Strong analytical and problem-solving skills
Bright minds excel in breaking down problems logically. This can be of paramount importance when they make strategic investment choices, optimize tax strategies, and effectively plan for long-term financial goals.
Higher learning capacity
High-IQ individuals have no need to enroll in courses or consult specialists to understand financial news or trends. When it comes to average people, they more often turn to field gurus and educators for help. On the other hand, smart individuals are more likely to educate themselves about personal finance. They accumulate knowledge through books and financial news. No one says that average people are unable to read a book or news, but they may have difficulties in processing large amounts of information efficiently.
The downsides of high IQ in finance
Overconfidence bias
Sometimes, intelligent people are overconfident in their abilities. They can mistakenly believe that they can outsmart everyone on the market or be bulletproof to financial risks. In turn, this can lead to the following problems:
- Reckless investing;
- Excessive trading;
- Ignoring expert advice.
Paralysis by analysis
Gifted people tend to overanalyze situations. It’s well-known that if you think too hard and too much about something, it can cause decision paralysis. You can start doubting your decisions. In the field of investing, waiting too long to act can mean missing lucrative opportunities.
Ignoring the emotional aspects of investing
The challenges of being a highly intelligent person include low emotional intelligence. There are fields where it’s an advantage. However, in the field of investing, it can be a stumbling block.
When relying solely on numbers, smart individuals might ignore market sentiment and consumer behavior. This can lead to failure.
What really makes someone good with money?
1. Self-control and discipline
The best results come when you have self-control and discipline. Wealth isn’t just about intelligence alone. It’s also about delayed gratification. When you save consistently, resist impulsive purchases, and stick to an investment strategy, you often yield the best results.
2. Adaptability and open-mindedness
Nothing is fixed or static. The financial world is constantly evolving. If you can adapt to changing environments, you can make better financial decisions. It means that you can learn from your mistakes, keep your finger on the pulse, and embrace change. It’s much better than when you rigidly stick to your own opinion.
3. Financial education and experience
Great drivers are made through experience. Just like that, making smart financial decisions isn’t just about natural intelligence. Many things depend on learning from experience. As a matter of fact, many successful investors, like Warren Buffett, highlight the power of continuous learning and long-term thinking. In this field, it’s much more important than sheer intellectual brilliance.
Do high-IQ individuals make better financial decisions?
All signs indicate that this is not necessarily the case. Surely, a high IQ can provide a strong foundation for understanding financial principles. However, it doesn’t guarantee wise money management.
If we take a look at the most successful investors and business leaders, we can see that many of them didn’t have the highest IQs. Without emotional intelligence, patience, and discipline, even the smartest individuals can make poor financial choices.
Lessons learned
Intelligence is certainly an asset in financial decision-making. However, it’s not the ultimate determinant of financial success. History proves that the best investors and business leaders do not succeed solely due to exceptional cognitive abilities. There are other qualities that a potential investor must cultivate to achieve success.
