MAASTRICHT, Netherlands — Keep an eye on those smart students in school — they could grow up to have a very profitable future! A new study has found an association between cognitive abilities in childhood and financial well-being decades later as an adult. Importantly, however, this relationship varies when it comes to different financial measures, such as level of savings versus having debt. While it makes a certain amount of sense that high scores in math class eventually translate to high financial literacy, this work highlights the nuanced relationships connecting cognition, development, and lifelong financial outcomes.
This study included close to 6,000 people, conducted by Joe Gladstone of the University of Colorado, Boulder, and Jenna Adriana Maeve Barrett of Maastricht University in The Netherlands.
Earlier studies have previously established a link connecting cognitive ability and financial well-being. Since then, most scientists have assumed that the mathematical nature of this relationship is a simple, linear one. Gladstone and Barrett stress, though, that if that assumption were to turn out to be false, it could mean that scientists have been underestimating the role of cognitive ability in people’s financial well-being.
So, to test this popular assumption, the research team analyzed data pertaining to 5,858 people who took part in the British Cohort Study since 1970. Study authors analyzed the relationships between each person’s cognitive abilities as evaluated at age 10 and several measures of financial well-being in adulthood, including debt-to-income ratio, level of savings, and investment account ownership. Researchers were sure to account for the effects of childhood socioeconomic status and present-day income on finances.
That analysis revealed that the mathematical nature of the relationship between childhood cognitive ability and adult financial well-being varies between different financial measures. Higher cognitive ability, for instance, displayed an association with higher scores on wealth measures like level of savings and investment account ownership. When plotted on a graph, these relationships appear linear (matching each other in a straight line) for most people yet not linear among those with notably high or low cognitive skills. Study authors also noted a linear relationship connecting cognitive ability and feelings of stress tied to finances.
However, when plotted on a graph, the relationship between cognitive ability and debt came out to be an inverted U-shape; people with either low or high cognitive abilities had the lowest debt, while others with average cognitive scores actually had the most debt.
All in all, more research is necessary to determine the exact mechanisms underlying the mathematical relationships uncovered by this study. More breakthroughs could help inform efforts to enhance people’s financial well-being.
“Our study demonstrates the complex and diverse relationships between cognitive ability in childhood and financial wellbeing in adulthood. The association is not linear or simple and understanding this can help us develop more effective interventions to enhance financial wellbeing for people with varying cognitive abilities. In personal finance, one size does not fit all,” researchers conclude in a media release.
The study is published in PLoS ONE.
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