The term “financial literacy” has become a business buzzword, peppering conversations in boardrooms, all-hands calls, and one-on-ones across industries.
Financial literacy typically refers to basic financial understanding — knowing what finance terms mean and how to use them.
But when managers and executives encourage their teams to have greater financial understanding, they’re looking for something very different.
Many high-performers unknowingly experience the costs of a lack of business financial knowledge: they’re passed up for promotions, feel discouraged when managers or executive leaders don’t support their ideas, and lack confidence that they deserve a seat at the table.
To succeed in a rapidly changing business environment, employees and executives alike need to understand the financial levers that drive their business. However, few companies offer training opportunities to promote financial understanding or provide clarity on what true financial fluency entails.
Bridging the gap between basic financial literacy and full financial fluency empowers tomorrow’s leaders to make better strategic decisions, leading to stronger organizational outcomes and more opportunities for financially savvy employees to move to the next level.
Jon Fay and Bryce Bow, instructors from Harvard DCE’s Professional & Executive Development, share their insights and guidance.
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Common Myths About Financial Literacy in the C-Suite
Executives and employees alike tend to believe their financial skills are “good enough.” But all functional heads (not just CFOs or CROs) should understand the financial logic that is critical for an organization’s success.
Here are some common financial myths that still plague many in the C-suite.
Myth #1: “Financial Literacy Is Enough”
Basic financial literacy is important. Understanding how to read a profit and loss statement, for example, is a key starting point. But that’s where many executives stop.
Tomorrow’s leaders need to move beyond the basics to delve deeper into understanding the financial logic behind their business’s success. Without that understanding, they could face missed opportunities in strategic planning, which ultimately impacts revenue.
Leaders who want to find success in uncertain markets need to deeply — and quickly — understand the factors driving a business’ financial performance.
Fay says the financial logic skills of the sharks on Shark Tank provide an example for burgeoning business leaders.
“On Shark Tank, Mark Cuban does the basic business math with a pen and a pad of paper to come up with a number. He doesn’t have to build a spreadsheet, because he understands the business financial logic,” Fay says.
Just like the investors on Shark Tank, business leaders need to be able to accurately — and rapidly — understand and describe how a business generates revenue and maintains profitability.
“Financial acumen is about sufficient accuracy with superior speed,” Fay says.
Myth #2: “Finance Belongs Solely to the CFO or Finance Team”
Regardless of department, every department head (or aspiring department head) should understand the financial logic of their business. Leaders who need CEO or CFO approval to hire new employees, purchase new technology, implement new processes, or make other decisions need to be able to speak the financial language of their business.
“CEOs are responsible for financial results. They own the balance sheet. Financial language is their native tongue,” Fay says. “If you’re a functional head, and you don’t speak the CEO’s language, you won’t be a player at the table.”
CEOs might enjoy hearing how a new tool could make a team happier and more efficient, but it won’t motivate them to say “yes.” Department heads need to explain how a new tool will limit costs or drive revenue — essentially, how it will impact the business financially — to get CEO buy-in.
They need to present their case in language that CEOs understand and respect, and to do that, they need to understand the financial levers of their business.
Myth #3: “We Have Analysts for That”
Analysts are great, but employees who want to be taken seriously, get promoted, or build self-confidence around their business acumen need to have a personal understanding of business financial logic.
“Learning this financial content was a big deal for me when I first encountered it a decade ago,” Bow says. “At that point in my career, it really built my confidence that I could be on the call, I could be in the meeting. It cut down on the internal imposter syndrome that I had been experiencing.”
Financial experts have an important role, but those analysts don’t come into board meetings or internal executive calls. That’s why leaders, department heads, and aspiring execs need to be able to interpret financial data themselves.
Financial acumen is about sufficient accuracy with superior speed.
Jon Fay
How Understanding Financial Data Drives Better Business Outcomes
Just knowing the numbers isn’t enough; leaders need to know what to do with them. Translating financial data into actionable insights is the critical next step in financial understanding for many business leaders.
Taken together, financial documents like balance sheets, income statements, and cash flow statements can provide an interconnected view of a company’s health. Under the analytical gaze of a financially fluent leader, these statements offer visibility into both strategic opportunities and potential risks.
The balance sheet shows a company’s capital structure, asset base, and liquidity position. By examining resource allocations and debt levels, decision-makers can assess whether the company has the financial stability to support a new product launch or enter a new market. For example, a strong liquidity position with few liabilities would indicate that a company could afford upfront investments in R&D or marketing without putting an undue burden on its operations.
The cash flow statement offers insight into a business’s operational sustainability. Strong operating cash flows indicate the business is capital-efficient and self-sustaining, enabling more aggressive investment in growth opportunities without resorting to external financing through investors.
When integrated, these financial documents can yield insights that enable leadership to make grounded, data-driven choices. Whether it’s launching a new product, entering a different market, or reallocating resources internally, insights drawn from financial statements form the bedrock of strategic planning.
Empowering teams and stakeholders
Financial transparency also plays a crucial role in creating a culture of accountability and innovation within teams. When financial information is openly shared, team members gain a clearer understanding of organizational priorities, resource distribution, and performance metrics — empowering them to make more informed decisions. Financial openness not only builds trust but also motivates employees to align their efforts with larger business goals.
Additionally, leaders with a solid grasp of the financial fundamentals that undergird the business can model transparency, setting a precedent for data-driven decision-making. Their example encourages others to ground their strategies, decisions, and innovations on clear, measurable insights. Financial transparency becomes a catalyst for both responsible action and informed problem-solving across the organization.
Identifying opportunities and risks
Leaders who possess a deep understanding of financial data are uniquely positioned to identify early signs of market shifts, anticipate potential cash flow challenges, and strategically push resources to high-potential initiatives. By closely monitoring key financial indicators and trends, these leaders can detect subtle changes in customer behavior, cost structures, or revenue streams before they become obvious to competitors.
Building a well-instrumented business environment that regularly yields clean, actionable financial data gives companies a competitive edge. With proactive financial insight, organizations can respond swiftly to minimize risks and invest confidently in areas that drive growth. This kind of foresight can help companies notice softening market trends sooner, safeguarding stability.
Additionally, insights into the elements driving revenue can provide a solid justification for pursuing new markets, developing new products, or reallocating resources.
Bridging the Gap Between Literacy and Fluency
Moving beyond the basics
Most business leaders are comfortable with the language around business finance: cost margins, P&Ls, and value creation. However, few know how to apply business financial logic to complex, real-world scenarios. In a world shaped by rapidly evolving technology and dynamic markets, basic financial literacy doesn’t promise continued organizational viability.
Financial fluency is necessary for long-term organizational sustainability. Businesses that want to succeed over decades need to leverage strategic thinking to navigate the many inevitable economic booms and contractions. Financial fluency — the ability to understand a business’s financial structure — is essential.
“It’s all about speed to insight,” Fay says. “If you can do those first-pass financials while everyone else is still debating, you earn a seat at the table.”
Fay recalled an experience from his career when understanding financial logic significantly impacted a business outcome.
He had been working with a large German technology firm. At an internal meeting, senior leaders were having a heated debate over whether they should pursue one option or go after a compelling alternative. They were unable to resolve the debate, so they decided to take a break.
During the 20-minute pause, he mapped out the first- and second-year financials for both plans. In the first year, there were no financial decisions that needed to be made — but the financials diverged wildly in year two. For a small investment, they could keep both options open for a year as they gathered more information.
Fay was able to walk back into the meeting with a clear solution: make the small investment now, then circle back in a year to make the decision when they had more data. With a little strategic financial thinking, Fay had solved the problem.
What Actionable Steps Can Leaders Take to Enhance Their Financial Acumen?
There are a number of ways for leaders to enhance their financial skills, including:
1. Continual learning and upskilling
Leaders who want to sharpen their financial fluency skills often need to pursue additional learning and upskilling opportunities. It’s unlikely that department heads, managers, or other leaders will learn the business financial logic required to make strategic decisions while on the job.
Professional & Executive Development’s Financial Fluency for Business Leaders program is a learning opportunity that builds deeper financial expertise. The program focuses on giving participants the tools and mental frameworks they need to develop financial fluency, helping them understand how businesses generate revenue and profits, and how they can interpret data to make intelligent financial decisions.
2. Cross functional collaboration
Business leaders who want to improve their financial acumen can also try engaging their finance teams directly. Working together closely, leaders can learn about what motivates financial decision-making and gain a deeper understanding of their company’s business model.
3. Apply insights in strategic planning
Financially fluent leaders have the ability to read and comprehend a variety of financial documents, understand financial data, and have a clear understanding of the business logic that drives revenue and profitability. Using these skills, business leaders can leverage their financial acumen to create informed growth strategies, manage risk, and drive organizational agility.
