What is Financial Intelligence?
Defining Financial Intelligence
To ensure we are all on the same page, I'd like to define a few terms and develop a working definition of financial intelligence. Let's turn to Webster and start by defining the terms as they appear in the dictionary.
Definition of financial: relating to finance or financier.
Definition of finance(s)
1: money or other liquid resources of a government, business, group, or individual.
2: the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities.
3: the science or study of the management of funds
4: the obtaining of funds or capital :financing.
Definition of intelligence
1: the ability to learn or understand or to deal with new or trying situations: reason; also: the skilled use of reason.
2: the ability to apply knowledge to manipulate one's environment or to think abstractly as measured by objective criteria (such as tests).
3: the act of understanding or comprehension.
Working definition of Financial Intelligence
1: the ability to learn or understand or to deal with new and trying situations in regards to money or other liquid assets.
2: the act of understanding or comprehending the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities.
In other words, the more you understand how money works in our capitalistic society, the higher your financial intelligence (which I will begin to refer to as FQ).
Develop Your FQ by Improving Your Financial Literacy
We shouldn't talk about FQ without talking about financial literacy. So let's throw in one more working definition to round out the conversation.
Working definition of financial literacy
1: the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.
Practically speaking, financial literacy is a life skill that very few people think about. It starts at the basic level of budgeting and living with-in one's means. Sadly, people rarely move beyond that level of understanding.
In 2015, Forbes published an article titled, A Global Financial Literacy Test Finds That Just 57% Of Adults In U.S. Are Financially Literate,
Can you explain what risk diversification is? Identify the effects of inflation? Know how to calculate interest? If you answered yes to these three questions, you are better off than 43% of Americans and a whopping two-thirds of the world's population.
We all know that financial literacy is important. Why then do we not "invest" the time, energy, and resources to improve our financial intelligence? That's the million dollar question.
To answert question for myself, I've committed a 365 Day Financial Intelligence Challenge. The guidelines for the challenge include:
1. Stay focused on my WHY, i.e. improving my FQ so that I can be a financial pillar for my family.
2. Posting a finance related piece to my blog everyday for the next 365 days.
3. The piece can be a long form piece or a simple two to three paragraph piece talking about financial basics.
4. I will count guest posts in the challenge.
5. HAVE FUN!!!
Learn what level you financial intelligence is at by taking the Financial Literacy Test by National Financial Education Council