The issue
About 70% of millennials, when surveyed, rate themselves as having a “high degree of financial knowledge.” Yet when those same people were given a five-question quiz on financial terminology and literacy, only 8% answered all questions correctly, according to a 2016 study by the National Endowment for Financial Education. This is but one piece of evidence that should alert us that young people, including those who are newly entering the workforce, are not adequately financially prepared.
Looking back at high school – and even college – years, it’s difficult to recall coursework and educational opportunities that taught the main elements of finance. Yet, as we grow older, we realize that financial education is among the most important and practical of items we should have in our toolkit to help ensure success in life. How many times do we say, “Why do they teach such-and-such (whether it’s “the periodic table,” “the history of Episcopalians,” or “how to conjugate a verb”) when I’ll never use it in real life?” Yet in the realm of finance, the opposite is true. Too many are left adrift in their early career years, navigating the world of finance without having been equipped with the skills they need to do so.
What do we need to know?
Among the financial concepts we all should have more than a cursory familiarity with upon entering the workforce are budgeting and cash management, pricing and revenue generation, cost and inventory controls, basic financing such as debt vs. equity, and the principals of capital allocation. Terminology like cash flow, gross profit, working capital, capital expenditures, and dividends should be in everyone’s vocabulary. Without this fundamental knowledge, one’s contributions in the workplace, and ultimately career success, will stagnate, not to mention one’s personal financial management and strength.
In many ways, gaining competence in the world of finance is like attaining fluency in a foreign language. In both cases, the earlier one starts, the better. There is a vocabulary to finance. There is a certain way of thinking and of grounding oneself in business realities, akin to the rules of grammar in a language. Imagine the difficulty of navigating daily life in a country in which you don’t speak the language. Not knowing finance fundamentals results in a similar challenge, both at work and at home.
Helpful resources are available
There are some great organizations helping to bridge this gap. Junior Achievement is one such organization, and one I actively support. Celebrating its centennial this year, Junior Achievement reaches almost five million students annually. It teaches both personal financial literacy (credit cards, banking, mortgages) and entrepreneurship and business management (starting a business, raising capital, marketing, human resource management, supply chain). Other groups that are effectively contributing include the National Financial Educators Council, JumpStart, and NextGen.
Next steps
So where do we go from here? In addition to the resources already cited, the professionals at TRI Corporation have been teaching finance and business acumen for 30+ years, to both academic (colleges and universities) and corporate audiences, and to both finance and non-finance professionals. We assess needs and provide solutions to fit the situation. We meet organizations where they are, and we help them grow in finance acumen to realize potential, both personally and professionally. Let me know if we should talk—you can reach me at mikeg@tri-sim.com.
