Assessing someone’s financial intelligence doesn’t have to be a complex process. Becoming proficient in basic money management could be easier than you think. However, due to inadequate financial literacy, the average American loses a staggering $1,819 every year, which adds up to a national loss of $436 billion.
The absence of rudimentary financial knowledge significantly affects people’s financial health and mental well-being, inducing finance-related anxiety and stress.
For business owners, despite the daunting thought of managing finances, experts insist there are simple methods to measure one’s financial acumen.
Economist Annamaria Lusardi and her team have developed a three-question assessment that checks understanding of fundamental financial concepts such as interest rates, inflation, and investment in stocks versus mutual funds. Surprisingly, only 29% of American respondents passed this financial literacy test in 2021, indicating a prevalent deficiency in financial knowledge.
Although the financial landscape includes numerous intricate tools and potentially deceptive paths to riches, it’s essential to grasp basic principles like interest rates, risk, and inflation.
A principle consistently emphasized by financial professionals is the importance of learning to live below your means and distinguishing between buying what you can afford and what you actually need. They encourage entrepreneurs not to allow fear to inhibit their financial understanding, arguing that gaining and mastering important financial knowledge is not only attainable but could be easier than anticipated.
