Simple Questions to Quickly Gauge Financial Literacy

In my most recent LinkedIn Live, I explored the questions one could ask non-finance staff to gauge their level of financial literacy.

Based on 30,000+ non-finance staff that we have trained, me and my team of trainers have identified these 5 areas where non-finance staff fall short in their financial literacy knowledge:

1. Understanding of basic financial terms
2. Understanding of accrual accounting
3. What impacts the P&L
4. The structure of a P&L
5. How financial statements work

Understanding of Basic Financial Terms

Below are 2 multiple choice questions that could expose whether non-finance staff have a handle of their financial jargon:

Question: What is a current asset?

• A. An asset we currently have in the business
• B. An asset we can convert into money within 1 year
• C. An asset that’s been fully paid off
• D. An asset that’s more than 50% paid off

Question: What is an accrual?

• A. Recording a future expense
• B. Putting aside money to pay a future expense
• C. Approximating how much we owe for a current expense
• D. Reversal of a current expense

To understand what their answers to these 2 questions reveal about their financial literacy, watch the clip below:

Understanding of accrual accounting

Show non-finance staff a P&L and ask them to explain relevant line items which will immediate reveal gaps in understanding.

Watch the clip below on how to test an understanding of accrual accounting:

What impacts the P&L

These two questions will reveal whether delegates understand what impacts the P&L and why:

Question: We buy $15,000 worth of inventory today, which we pay for in 30 days time. When will this impact the P&L?

• A. We record an expense today
• B. We record an expense in 30 days’ time.
• C. We record an expense when we sell the inventory
• D. We record an expense we get paid for selling the inventory

Question: A customer pays us a $20,000 deposit for goods which will be delivered to him in 30 days time. He has another 30 days to pay the balance of $20,000

When do we record the revenue on the P&L?

• A. Today
• B. In 30 days
• C. In 60 days
• D. In 90 days

For the answers to these questions and how the answers reveal the gaps in understanding P&L impacts, watch the clip below:

The structure of a P&L

Understanding the structure of a P&L is of paramount importance. The clip below reveals how to test understanding of the P&L structure:

How financial statements work

Non-finance staff need to be able to navigate their way around financial statements in order to know where to look for the numbers they need.

This explains how to test whether non-finance staff have gaps in financial statement navigation:

I hope you're able to use these simple litmus tests to successfully gauge whether your non finance staff are financially literate or whether they need help.

Good luck !

Best,

Mark

Whenever you're ready, I have 3 live, virtual courses that can help you and your company:

1.????? Finance for non-finance Managers – Fundamentals - This course is delivered in three 2.5 hour modules. Our expert finance facilitators use our interactive finance game to help non-finance staff understand financial jargon, make sense of P&L’s and make better financial decisions.

2.????? Finance for non-finance Managers – Customized - This course is a customized follow-up to the fundamentals course. We prepare case studies using your P&L’s and business numbers to help your non-finance staff with commercial acumen and apply what they have learnt in a practical and real way.

3.????? Finance for Sales Teams – This course helps sales teams drive profitability by giving them the financial skills to protect and improve their margins.