Financial stress reduces effective IQ

This is a huge finding.

This seems like a breakthrough study, and Sandhil Mullainathan’s name on the paper guarantees that it’s methodologically as tight as it could be. Note that one of the two studies is an experiment, while the other is a before-and-after on a fixed set of subjects,* eliminating any question about which way the causal arrow points.

Mullainathan comments that the 13-point measured IQ gap between Indian peasants under pre-harvest financial stress and the same people with a post-harvest cushion is about the same drop you’d get after missing a night’s sleep. It’s also about the same as the measured black-white IQ gap in the U.S.; in addition to having lower incomes, African-Americans also have much lower wealth (even controlling for income) and thus face much greater financial stress.

Kelly is right: The poor are different from the rest of us primarily because they have less money, and providing money, while not the full solution, is an essential piece.

*[Updated to correct an error spotted by Keith in comments.]

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

20 thoughts on “Financial stress reduces effective IQ”

  1. Intriguing to be sure, but the harvest study is not an experiment, it’s a run of the mill within group before-and-after study with no control group.

    1. For the study done in India, it does appear that there was a control group of 100 farmers who were not tested initially and were tested only in the post-harvest period. The first thing that comes to mind in a before-after test of cognitive function is a training effect; farmers taking the test after the harvest could have test scores influenced by two variables: being in better shape financially, and taking a test that they have seen before. The authors controlled for this by comparing the test scores of 100 farmers in the post-harvest who were seeing the test for the first time with the scores of the rest of the farmers in the post-harvest period who were taking the test for the second time. Their results on the tests were similar, suggesting that a training effect was not importantly influencing the differences in pre and post-harvest test performance. The improvement in scores could be partitioned into training and economic effects, with the training effects being negligible in relation to the financial effects.

      The authors are to be commended for a study design which controlled for a variable which might otherwise undermine their interpretation of the results.

      1. The authors are to be commended for a study design which controlled for a variable which might otherwise undermine their interpretation of the results

        Good point Ed, though of course that is different than a control group which was not exposed to the presumed independent variable.

        1. True ’nuff. Best usage is probably “control group” for experiments and “comparison group” or “unexposed group” for observational studies. If there were a group of Indian farmers who did not have financial stress in the pre-harvest period that would be an unexposed group, with the usual gang of confounders of course.

          Study is a pretty good one overall. If the effect size is close to one standard deviation of the dependent variable, that is pretty big by almost anyone’s reckoning. And the policy implications (not insisting that poor people comply with complicated and arcane regulations for getting assistance, for example) are nicely suggested and are appropriate just on the face of things.

          Not that this will have any effect on the thinking of His Majesty’s Government under the leadership of P.M. Francis Urquhart. Far as he’s concerned the thing to do with these people is to put a bit of stick about.

          1. ” If there were a group of Indian farmers who did not have financial stress in the pre-harvest period that would be an unexposed group, with the usual gang of confounders of course. ”

            And that would be a major confounding problem, since that group would probably be extremely different from the stressed group in many, many ways.

    2. You’re right. Post corrected. In each case the study design eliminated the ambiguity in correlational studies about whether, e.g., stress reduces IQ or low-IQ people get themselves into stressful situations.

      1. This should be doable; one has to find people being hit by something which can be viewed (or rather, is accepted as) exogenous. For example, I’ve heard of layoff studies where there are two or three factories eligible for closure, with one closed.

  2. Is the difference in I.Q. attributed to stress in general, or unique to “financial” stress?

    1. Not according to the authors. From the abstract:

      We found that the same farmer shows diminished cognitive performance before harvest, when poor, as compared with after harvest, when rich. This cannot be explained by differences in time available, nutrition, or work effort. Nor can it be explained with stress: Although farmers do show more stress before harvest, that does not account for diminished cognitive performance.

      1. Thank you. I’d be interested to see the results for other financially stressed groups beyond the two chosen, for instance, gamblers. The stress facing them on Monday, after having lost a bunch of football games Sunday, would lead them to make poor decisions on other issues, unrelated to their gambling.

  3. So that’s what makes the 1% so rich?

    Doesn’t explain grad students, though. And consider how smart they’d be if they weren’t impoverished by their education?

    Actually, this sort of income-driven IQ inequality might explain why the US is becoming increasingly uncompetitive on multiple levels in the world economy. Our workers live packed in trailer parks and apartments, including now much of what was formerly considered our “middle-class,” who are “lucky” if they don’t depend on food stamps to make ends meet, have access to poor or no healthcare (an issue still not resolved in spite of the president’s boosters), and strain to be able to afford user fees at the local high school.

    Meanwhile, our billionaires, wallowing in New Gilded Age excess, simultaneously campaign to privatize education and cut school taxes, along with every other kind of taxes they can think off — except sales taxes, of course. But they’re smart folks. They’ve got too many of us working for them, mesmerized by a glass teat, while we should be looking our for our own interests. Gives a whole new meaning to “keeping ’em poor, barefoot and pregnant…” — kind of. Actually, sounds like it explains a lot of that 21st century corp speak intended to market the noble wonders of a poverty-rich, free-trade lifestyle to the 99%, don’t ya know?

  4. Thanks for linking to this, Mark!

    I wonder how much of this would have been established decades ago if more women were involved in research?
    I imagine any mother would have figured this out long ago.

  5. Not that I know what “effective” IQ is, but this seems to undermine IQ tests as well as our economic system.

    I remember one part of the test I was given as a child. The person asked me what glass was made out of, and even at that age — 7 or 8? — I knew that was a completely b.s. way of trying to tell how smart I was. But playing with the little shapes was fun.

  6. The poor are different from the rest of us primarily because they have less money, and providing money, while not the full solution, is an essential piece.

    Another essential piece of European social democracies is what is probably best called the smoothing of cash flow for individuals and families. A big problem for the average American poor is not necessarily not being able to make ends meet, but a sudden spike in expenses (illness, having a baby) or a gap in income (illness, unemployment) that creates sudden debt, then more debt (via payday loans or running up your credit card balance), and cascading effects up to and including homelessness. The continental European welfare states (and especially the Nordic ones) do a much better job of reducing or eliminating income volatility.

    Obviously, this benefits middle class families, too (imagine a world where you don’t have to worry about college funds for your children or where monthly daycare costs are in the double digits), which is why (1) these policies are generally pretty popular and (2) in several of these countries a lower after-tax income (compared to the US) can still result in a higher discretionary income.

    This also relates to a frequently heard complaint about the PPACA: That young, healthy people have to subsidize older ones (because the PPACA capped the age-based multiplier). This complaint borders on innumeracy. Every 20 year-old will eventually become a 30-year old, then a 40 year-old, then a 50-year old, and so forth. There’s no subsidy here (except for the small number of individuals who die at a young age, and they presumably have other things to worry about). But by paying more early on, young people will later benefit from reduced rates (if anything, a 300% rate multiplier is probably still too high).

    1. Not to mention the huge efficiencies that arise when a society solves a societal-scale challenge (like day care, or elder care, or hospitalization costs) instead of doing little or nothing and letting every individual sort these unijversal needs out on her own — which is vastly inefficient and expensive, if not undoable, and results in little or no scalability.

      BTW, I always love your erudite and well-formulated comments, Katja.

    2. In the US, I think you can’t entirely separate chronic (not being able to make ends meet) poverty from income volatility (disasters). Because there’s always a next disaster (the next time the car stops working, the next time the kids get sick, when the lease comes up and you have to find a new place to live). And paying for the last disaster — often an horribly inflated interest rates — is a big part of what a) makes it hard to meet current expenses and b) sets you up for the next disaster. It’s expensive to be poor.

      One of the things that fascinates me is that the European system actually encourages risk-taking and entrepeneurialism compared to the US system, because you can try something new without being afraid that your kids won’t go to college or that you won’t have health care or that you’ll be homeless.

      1. paul: In the US, I think you can’t entirely separate chronic (not being able to make ends meet) poverty from income volatility (disasters).

        No disagreement from me. I was trying to address how poverty above the subsistence level (being able to make ends meet, but risk of dropping below the subsistence level) is a different beast from poverty below the subsistence level (not being able to make ends meet). The frustrating part is that both of these are essentially solvable problems [1], but there doesn’t seem to be any interest in adopting any genuine solutions in the US. Part of the problem may be that a minority of Americans seems to believe that success in life (or lack thereof) is determined by forces outside their control (bringing to mind John Steinbeck’s quote about the poor not seeing themselves as exploited, but as temporarily embarrassed millionaires).

        paul: One of the things that fascinates me is that the European system actually encourages risk-taking and entrepeneurialism compared to the US system, because you can try something new without being afraid that your kids won’t go to college or that you won’t have health care or that you’ll be homeless.

        While that has been often said, it’s not necessarily true that European social democracies encourage risk-taking once you consider the totality of their systems. As an extreme example, the German system really abhors volatility, and is built around stability often at the cost of economic growth and risk-taking. For example, it takes a minimum equity of € 25,000 to start an LLC in Germany; below that, you’ll remain personally liable for your company’s debts. Similarly, German personal bankruptcy laws are extremely strict, and it can take you up to six years to dig your way out of it; mind you, you won’t starve or lack a roof over your head or have to go without health insurance, and your children will be able to go to college [2] if they’re so inclined and have the ability even then. But there’s still a considerable risk in giving up a well-paying job. Most commonly, people in Germany seem to start a small business because (1) they have a solid business model with little financial risk, (2) after they’ve lost a job, or (3) in addition to a job they have (or a job their spouse/partner has). In short, while the risk associated with failing at a business is lower, the end result of failing is often still less than pleasant; enough so that it serves as a measurable disincentive.

        [1] Which is not to say that European social democracies have zero problems with homelessness etc. (dealing with the problems of the bottom .1% remains difficult), but they have dramatically fewer problems with either absolute or relative poverty.
        [2] I note that with an established vocational training system with its own career tracks, college isn’t quite the difference maker that it is in the US. Until recently, many continental European countries didn’t even have Bachelor’s degrees, because there was too much overlap with the vocational system, and the minimum degree awarded by most programs was generally the equivalent of an MS or MA.

  7. How much class and race prejudice comes from the well-nourished observing that the hungry are stupider than themselves?

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