Financial Literacy

A recent article in The Globe and Mail by Marjo Johne (“Removing the mystery behind the numbers,” April 14, 2011) describes the efforts of companies to provide financial education and awareness to their employees. The article quotes Karen Berman, founder of the Business Literacy Institute (http://www.business-literacy.com/blog/), based in Woodland Hills California: “Financial literacy is a strategic imperative for these companies (Visa, American Express, GE, and Electronic Arts). For many of our clients, the thinking is that they’re going to perform well in the long term if more people in the company understand the numbers behind the business.”

Literacy, financial and non-financial, is a major issue for making change happen in organizations and in pursuing continuous improvement. Imagine the benefit if employees understand the concept of cash flow or the meaning of gross profit (and what increases or decreases it).

Employees who understand, even in broad terms, the concept of company valuation and the key levers that enhance shareholder value are in a much better position to understand the “why” behind business decisions and actions and not just what they need to execute. In general, the understanding of the “why” is often as important if not more important than knowing the “how.”