The Importance of Financial Literacy for Employees

Financial literacy is an essential skill for professionals across all industries and levels of responsibility. Whether you’re managing a team, running a business or involved in the day-to-day finance decisions in your role, having a solid understanding of basic finance and accounting concepts can have significant benefits – both for you and the overall performance of the business.

In this guide, we’ll take a closer look at what financial literacy is, the benefits for both employees and the business, and the strategies you can use to improve it in the workplace.

• What is financial literacy?
• Why is financial literacy important in the workplace?
• Benefits of financial literacy for employees and businesses
• Financial literacy skills that are beneficial in the workplace
• Strategies to improve financial literacy in the workplace

Warwick Business School is committed to addressing the skill gaps by equipping business professionals with the essential knowledge they need to excel in their careers. Through our extensive range of Executive Education programmes and courses such as Finance for Non-Finance Leaders, we provide practical, industry-relevant learning experiences that provide a deep insight into key business themes.

Get in touch today to find out more. 

What is financial literacy?

Financial literacy is the ability to understand and use financial skills and concepts to make informed decisions about money. Key aspects of financial literacy include knowing how to budget, manage debt and understand key financial jargon. It can include more complex topics such as creating forecasts, interpreting financial statements and producing financial reports.

Financial literacy forms the foundations of smart money management and having an understanding of the fundamentals can support various life goals, not only in the workplace environment but also in your relationship with financial management.

Why is financial literacy important in the workplace?

Financial literacy is an essential skill for everyone in the workplace, regardless of role or seniority.  For employees, financial literacy is twofold: it’s not only about knowing how to manage personal finances but also about understanding the financial health of the business and how individual actions and decision-making contribute to broader financial outcomes for the organisation.

Financial literacy not only empowers employees but also creates a culture of financial accountability and transparency. In turn, this enhances growth, resilience and confidence, leading to better overall performance and stability.

Benefits of financial literacy for employees and businesses

Stronger cross-departmental relationships

When all employees have a basic understanding of financial concepts, communication and relationships between departments improves. Having an understanding of the fundamentals of finance and accounting terminology allows employees from non-financial backgrounds to engage with and contribute to financially driven conversations with confidence.

Better decision-making and problem-solving

Financial literacy empowers employees to better understand financial data and the effects that decisions have on the key performance indicators (KPIs) that underpin wider business objectives. This helps them make informed decisions that directly contribute to their role and department whilst also aligning with the financial goals of the organisation.

Whether it's managing budgets, evaluating costs, or assessing financial risks, understanding the financial context in these decisions allows employees to make more strategic choices that not only improve decision-making within their department but also benefit the organisation overall.

Improved business performance and risk management

A financially literate workforce reduces the risk of poor financial decisions that can negatively impact both employees and the organisation as a whole. For entrepreneurs in Small and Medium Enterprises (SMEs), understanding financial concepts is essential, as they often operate across various functions within the business.

Similarly, general managers and department heads in larger organisations benefit from a solid understanding of financial principles, particularly if they are not from a financial background. These skills are invaluable when managing resource allocation, tracking against KPIs and identifying opportunities for growth, investment and cost reduction.

Having an understanding of finance fundamentals ensures that all employees are equipped with the skills and knowledge to make well-informed business decisions that play a direct role in the financial management of the business.

Increased employee engagement

Employers who provide financial literacy training and promote professional development in this area show that they care about their employees' growth. For employees, this can enhance job satisfaction and loyalty as they will feel more invested in their careers.

For professionals who hold leadership or management roles, it can be common for them to feel sidelined by financial terminology if they lack formal financial training. Providing them with the tools and resources for growth and development creates an inclusive environment where employees feel more empowered and engaged.

Financial literacy skills that are beneficial in the workplace

Interpreting financial documents

Having the skills to interpret and analyse financial documents such as profit and loss accounts, balance sheets and cash flow statements is crucial for understanding the financial health of a business. Having an awareness of the key accounting principles which impact them allows you to assess the financial position of the organisation, identify trends and make informed decisions based on current financial performance.

Understanding budgets and forecasts in strategic planning

Being able to create and manage budgets based on forecasted financial planning is essential for strategic planning and organisational success. You can leverage this data when creating short-term and long-term strategic decisions as well as during negotiations.

Using financial ratios for evaluation

Financial ratios are calculations used to measure two or more variables from a financial statement. These ratios are and are used to determine profitability, liquidity, and solvency and can be used to help business owners, investors and managers make informed decisions and identify based on the financial strength and weakness of a business. Having an understanding of these calculations can enhance your decision-making capabilities and give you the confidence to engage in strategic conversations.

Investment decision making

Regardless of the area you are working in, knowing how to evaluate investment opportunities is critical for long-term business success. This includes assessing potential risks and returns of investments and using financial data to determine whether it aligns with the goals of the business. Whether you’re making decisions about project funding, capital investments or business expansions, having the ability to evaluate these opportunities allows you to make data-driven choices.

Strategies to improve financial literacy in the workplace

Identify the specific gaps in knowledge literacy skills

Employees will have diverse needs when it comes to identifying the skill gaps in financial literacy amongst your workforce. Identifying these gaps through questionnaires and reviews is an effective way to assess the scope of these requirements to determine the individuals or departments who would benefit most from financial literacy training. By conducting surveys and encouraging discussion through reviews, organisations can pinpoint areas where employees need more support and training.

Encourage peer learning and knowledge sharing

Creating opportunities for employees to learn from one another can foster a collaborative learning environment. Employees who have a strong understanding of financial concepts can be encouraged to share their knowledge with their colleagues through informal discussions, workshops or mentoring opportunities to bridge the skills gap. Peer-to-peer learning not only strengthens the overall financial literacy of the team but also promotes a culture of learning between colleagues.

Partner with a reputable financial education provider

Investing in established courses or forming partnerships with financial experts can bring expert-led financial training to your workplace, without relying on the expertise and knowledge of your finance teams and executives.

Partnering with reputable education providers and universities ensures that employees receive high-quality, credible education delivered by industry experts. These are often delivered through workshops, online courses or seminars.

For employees at managerial and executive levels, Executive Education courses can be a great option for financial literacy training and to focus on other niches such as leadership, negotiation and strategy execution. 

Our Finance for Non-Finance Leaders is a great example of this. Taught through a combination of teaching methods, these short-term courses are designed to develop the skills and theories to help you become a well-rounded leader while teaching you the principles of a particular business area. 

Promote a culture of continuous financial learning

Financial literacy education is an ongoing process and the financial landscape is constantly evolving. To ensure that employees stay up to date with changes in the business environment, a culture of continuous learning should be encouraged. 

Improve your financial literacy and advance your career with WBS

Our Finance for Non-Finance Leaders Executive Education programme has been purposefully designed to educate those who hold leadership or management roles but lack formal financial training. Aimed at demystifying financial jargon and providing you with an understanding of key financial concepts, this programme will provide you with the knowledge and skills you can apply directly within the workplace.

Discover our extensive range of Executive Education courses or get in touch with our team to learn more and to see how we can help you.