Why Financial Literacy Has Become a Core Skill for Modern Executives

Why Financial Literacy Has Become a Core Skill for Modern Executives

Finance is its own department. It’s a clearly delineated set of responsibilities that, though core to every aspect of a business, is not necessarily tied directly to the responsibilities of every executive.

At the end of the day, though, businesses exist to make money. Shouldn’t business leaders understand their numbers at as high a level as is possible? Financial literacy helps executives strategize and execute at the highest possible level.

In this article, we take a look at why these skills are important and what you can do to develop them.

Overview

No matter what the job description of a business executive is, their job is to steer the organization that they lead toward profitability.

• Growth: Most executives do understand surface-level finance. They can read reports and projections. But it takes a heightened level of understanding to process the logic behind these reports. What drives the business? What factors are behind these numbers? These questions should weigh on the mind of any executive worth their salt, and the answer to them is in financial literacy. It’s a simple matter of maximizing the impact of decision-making. Benefits include improving the odds of success.
• Risk management: Executives are there to mitigate risk by being able to comprehend financial data at a higher level. Business leaders become that much more effective at steering the ship toward prosperity.
• Effective capital utilization: Financial literacy is not only about conservative risk management, it’s also about resource optimization. Every business has limits to the amount of capital they can put forward. How can an executive direct resources in a way that will produce the highest return? The answer to that question is buried in the numbers. Finally, it’s by looking at the numbers with an expert’s eye that business executives can make better, more detailed, long-term plans for the future.

You don’t need to be CEO and CFO both. Within a well-run organization, everyone has their own role to play. Strong leaders, however, can at least speak the language of the people they surround themselves with.

That answers the question of why. What about, how? In the next couple of headings, we take a look at how business leaders can develop the skills they need to succeed at the highest possible level.

Do You Need an Accounting Degree?

You certainly don’t need an accounting degree for general business leadership. While this is the most comprehensive way to develop financial literacy skills, an education targeted specifically around accounting will translate at the highest level into the CFO track.

Certainly, that is a worthwhile career objective, but not necessarily one that appeals to every business leader.

If you want the focus of your career to be around an analytical understanding of business finance, this might be the route for you.

If financial literacy is more of a consideration that’s adjacent to what you’re doing, people with a more generalized interest in executive business considerations can still consider an accounting education in the context of a minor, or even in a few high-value classes that they pick up on the side.

However, if you’re going to orient your entire business education around accounting, you should understand that finance will be more than just something you’re literate at.

It will most likely be the foundation of all the work that you do.

A Master of Business Administration (MBA)

A Master of Business Administration degree is a much more well-rounded educational solution for people who are interested in gaining financial literacy skills while still advancing their careers in a more generalized direction.

You will learn more about the financial side of business. To what extent this is the case will depend on the program you select. For clarity on that subject, speak with the enrollment office about your goals. They should have no trouble recommending a program that aligns with your desires.

MBAs are extremely desirable credentials for employers. They help you on the promotion track and expand your salary expectations pretty rapidly.

Studies have shown that the median starting salary for MBA graduates is around $120,000 a year, whereas the starting salary for someone with a comparable bachelor’s degree is just $70,000 a year. It’s not uncommon for MBAs to go on to $200,000-plus salaries.

Naturally, the way that you use your MBA for leverage will go a long way toward shaping your experience. To maximize the ROI, it’s a good idea to begin actively looking for a higher-paying job immediately. Why? Well, let’s put it in a way that someone with an advanced degree in business should understand: do you think an employer is going to pay someone $70,000 more per year if they didn’t ask for it? Of course not.

To maximize the effectiveness of your graduate degree, tell your current employer what you’re pursuing. If they do not immediately offer a raise that aligns with your well-researched and reasonable salary expectations, start shopping around.

Leveraging offers from a potential employer is one of the most effective ways to get a raise. The key, of course, is that you need to actually be willing to leave if they don’t make you an offer.

Conclusion

Here’s another way to look at it: in business, stagnation is death. That’s the way your boss feels about the brand, product development, and market positioning. And while they probably wouldn’t put it that way, it’s also how they feel about you.

If you’re not leveling up regularly, you’ll at the very least fall behind people who are. At worst, you’ll be replaced by them.

You don’t necessarily need an MBA to become financially literate, but it is a very powerful career growth lever. As a businessperson, it’s good to see the world in the context of leverage. You want to focus on inputs that produce far greater outputs.

An MBA is a powerful example of how you can recalibrate your training to make more money, advance your career, and simply be better at your job.