Whether you think of yourself as a numbers person or not, financial literacy is hard coded into the manager’s skill set.

Why Financial Literacy Matters

Commercial organizations exist to make a profit. Even nonprofits have to balance the books. Even if you and your organization are motivated by a higher purpose, you won’t get much chance to improve the lives of millions unless the numbers stack up. You won’t be around long enough. So here are seven compelling reasons to build your skills in financial literacy:

1. Better Decision Making

You make better business decisions if you understand financial data. If you can figure out financial statements, you can analyze profit margins and decide whether to invest in new equipment, expand product lines, or cut costs in specific areas to improve profitability. In short, you can see all your options.

2. Improved Cost Management

Knowing the numbers means you can identify and implement cost-saving measures, improving your organization’s bottom line. For example, by analyzing your team’s expenses, you may notice high spending on travel expenses for company events. So you can then propose or negotiate better terms with hotels and travel companies, leading to significant savings. And everyone loves savings.

3. Enhanced Strategic Thinking Skills

Financial literacy gives you the big picture. A good overview of financial data and trends lets you plan in a way that aligns with your company's goals. You can create detailed budgets for new projects and forecast revenues and expenses accurately. So the organization can allocate resources effectively and achieve project milestones without financial strain. And you get the kudos.

4. More Effective Communication

A grasp of the figures helps you to get your point across more effectively. Being able to communicate financial information clearly and accurately to various stakeholders is a huge plus. During team meetings, you can get your team on board with an idea more easily if you can show that the finances work.

This kind of presentation doesn’t need to be complicated: just a summary of how things have gone in the last period, plus an idea of how they might go in the rest of the year. And, most importantly, what that’ll mean for the work of the team. Just make sure you don’t get bogged down in too much detail.

And don’t forget your superiors. If you can present financial reports to the board of directors, you’ll build their confidence in you and your team, and help with their decision making.

5. Improved Risk Management

Understanding risks and mitigation strategies helps you to protect the company's financial health. If you recognize the risks of currency fluctuations on international sales, for example, you can use hedging strategies to protect the company's profits from adverse exchange rate movements.

6. Better Budgeting

When you can create and manage budgets effectively, you can ensure that resources are allocated efficiently. You can develop a detailed budget for a new marketing campaign, say, monitoring actual spending against the budget, preventing overspending and adjusting as you need to.

7. Enhanced Confidence and Credibility

This might be the best reason of all to get savvy with numbers. It’s really a cumulative effect of the previous six points.

Financial literacy boosts a manager's confidence in their financial decisions and enhances their credibility with peers, reports and superiors. A manager who can confidently discuss financial performance during meetings with senior executives is more likely to gain their trust and support for new initiatives or projects.

What You Need to Know and When

Don’t try to run before you can walk. There’s no point trying to understand the financial details of leveraged buyouts if you’re running a small marketing team. Start with the basics and go from there.

To become perfectly fluent in finance takes experience and effort. But non-financial managers with financial responsibility can still learn the key terminology.

By understanding the basic financial cycle of transactions, balances and statements, you'll develop a much better appreciation for the numbers – and be able to use them to make sound managerial decisions. That’s good for your team, your organization and you.

So get your head around the numbers: you’ll be a better manager for it.

What's Next

There’s plenty to get your teeth into with financial literacy, and plenty of good advice out there, so choose wisely. If you want to get an immediate handle on the basics, there are our articles Understanding Accounts and An Introduction to the Key Financial Documents.

And if you already have a decent grounding, but want to expand your skills and knowledge, check out our Skillbooks in Finance Management and Financial Forecasting in Project Evaluation.

Tip of the Week

Not So Fast Food

By Kevin Dunne, Mind Tools Editor/Writer

I’ve had a lot of ideas in my life. I’ve got a filing cabinet full of them – comedy sketches, songs, a half-written book, screenplay ideas. That cabinet is stuffed to overflowing, and all of it gathering dust, not momentum.

Then there are the business ideas, destined to catapult me out of the 9-to-5 and into the realms of yachts anchored in the Caribbean and supercars sweeping majestically along exotic coastal roads.

There were the domain names of the late 1990s I bought (and was going to sell for huge numbers), then there was the plan to buy a big house and run a day and night creche (we had young children at the time), whereby we could live in that big house and get the business to buy it.

Now you may or may not believe me, but I swear it’s true. In 2000, I came up with the idea of buying and delivering fast food through the embryonic world of digital TV.

Fast Fodder, it was going to be called. Yes, we needed a new name. Hmm, something simple like Just Eat (current market value $2.56 billion) maybe, or Deliveroo ($2.17 billion) perhaps…

I should have looked at How to Turn Your Idea into a Business Reality.

Pain Points Podcast

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News Roundup

This Week's Global Workplace Insights

Phoning It in

They say a week is a long time in politics; at work it seems to be around 30 minutes these days.

Business magazine Fortune carried the news that 59 percent of workers “couldn’t go just 30 minutes without encountering a diversion.”

The story, based on a survey by workplace analytics platform Insightful, revealed 62 percent of respondents blamed their phone. But other employees, rated at 70 percent, were the biggest distractors.

And a third of employers estimated the lost time ran between six to 10 hours a week!

Focus has long been on the decline, according to University of California professor Gloria Mark. She said, “In 2004, we measured the average attention on a screen to be two and a half minutes. Now [it’s] 47 seconds.”

Insightful reported around four in 10 respondents said greater work flexibility would help increase focus, as would a four-day week. And that early adopters of these practices had seen productivity boosts and fewer burnouts.

Less could be more, then?

Keeping It Unreal

Despite the conversation around bringing your whole, authentic self to work, that option for many “is still a luxury,” reports workplace news site Worklife.

Based on a survey from Express Employment Professionals and Harris Poll, Worklife revealed that more than 40 percent of workers fear they can’t totally be themselves at work, while 80 percent said they don’t like to discuss personal topics on the job.

The trouble with that approach is, “The cognitive capacity it takes to cover up your true thoughts and feelings takes away from your ability to effectively do your job,” said Christy Pruitt-Haynes of the Neuroleadership Institute.

Top subjects avoided at work include salary/wages, politics and religion. Not all bad, insisted Express Employment International’s Stephanie Miller. She said, “It’s allowing people to have some personal boundaries and then also be very aware and respectful of differences with their co-workers.”

To discover some of the benefits of being yourself at work, see our article Authenticity: How to Be True to Yourself.

See you next week for more member-exclusive content and insight from the Mind Tools team!