Once upon a time, financial literacy (also known as finlit) was left to the accountants and bookkeepers. They’re able to translate the numbers and decimal points into words and advice that business owners can understand to help determine their financial plan of action.
A recent study by the Financial Industry Regulatory Authority showed that 60% of Americans said they were financially illiterate.
And for many small-medium businesses (SMBs), accountants and financial advisors are luxuries few can afford. This means small business owners have to take on the added responsibilities of collecting and analyzing financial data like cash flow, budget projections, profit and loss and so on.
In the last 30 years, the rise of technology has lead to an increased access to financial services and literature, making it easier for SMB owners to take control of their financial situation.
What is financial literacy?
Financial literacy is a broad term, but generally speaking it is the education and understanding of various financial areas like money and investing. Beyond knowing where money comes from and where it goes, it involves understanding how money works, how to spend money to make money, and how your financial decisions will likely affect your personal and professional life.
According to Business.com, small business owners tend to rely on their personal finances when they first start out. The line between personal finance and business finance becomes blurry as these owners dip into their personal credit and resources to make their SMB successful.
Larger companies have the luxury of being able to hire experts in a variety of fields and disciplines like finance. This makes the work manageable and ensures that it’s being done properly by the right people.
Business owners should make finlit a priority in their own education to better understand these crucial numbers and improve the health of their business.
Accountants are able to provide reports and statements that bring the intricate details of finances to light. They’re full of great information. But information isn’t free or easy to come by, especially with such specific terminology. How can you know where to start?
Get immersed in the world of finlit to familiarize yourself with the vocabulary. Although it can be very confusing for a non-accountant and numbers-hater, you can gain a basic understanding by asking professionals in the space. No accountants in your vicinity? Google’s full of friendly advice.
With that said, understanding financial literacy can improve these communications so you’re not blankly staring down at numbers as they’re presented.
In today’s techspace, financial literacy is becoming easier to master. You don’t have to be an expert and you don’t have to pay for classes (unless you want to). You need to build a solid knowledge base about your business finances.
Why is being financially literate important?
According to Investopedia, financial illiteracy is a danger for small business owners. It can enable them to become victims of predatory lending, fraud and high interest rates, bad credit, bankruptcy, and foreclosure.
Intuit recently published a study that showed that 40% of small business owners are financially illiterate, yet 81% of them handle their own business finances. Financial literacy can be accomplished with a few handy tricks and your computer.
Education is the most important tool you can use as a small business owner to become and stay finLIT in the techspace.
Read, read, read: There are so many resources at your fingertips, whether that be books, magazines, or online publications. There are so many ways to learn about financial literacy via the internet. For example, Invested Wallet provides a ton of resources from personal blogs to book recommendations to give readers ample tips and support.
Use financial management tools: Nowadays, there are tons of free data aggregation apps that enable business owners to understand their financial health like cash flow and credit. Accounting software like Quickbooks and Xero make it easy to keep accurate and up to date records of your business’s financials.
Listen to money podcasts: Podcasts have become a way for many people to learn on the go, and there are a ton of finance-focused podcasts like So Money or Smart Passive Income that give great tips and support for those finding their way through the numbers.
Take a financial literacy course: Of course, there’s no better way to learn about finlit than in a course designed by money experts. There are also many cheap alternatives, like online courses, or 6-8 week programs.
Government resources: In 2003, the government created the Financial Literacy and Education Commission, providing resources for people who want to learn more about finlit. This resource is constantly being updated with new programs and news to stay current with the growth of financial literacy.
Technology is a way to bring financial literacy to your fingertips. Why pay someone for something that you can do yourself?
These tools allow small business owners the ability to organize information, track bills, send invoices, and maintain payroll. This is done all without the need of an accountant, giving small business owners the ability to do their own bookkeeping.