5 things every college student should know about investing

I’m sure you’re aware of recent studies that focus on the importance of emotional intelligence over intelligence quotient (IQ) in high-achieving individuals. As I see it, building your financial intelligence (FI) is just as essential to business and personal success. However, most people don’t understand how to measure – or enhance – their financial intelligence.
In the business world, the study of FI is growing, thanks in large part to the pioneering work of the late Karen Berman and her co-author, Joe Knight. According to them, “financial intelligence isn’t some innate ability that you either have or don’t have. Like most disciplines and skill sets, it must not only be learned, it must also be practiced and applies.”
Berman and Knight’s best-selling work, Financial Intelligence, identifies the four fundamental skill sets essential to successful FI:
1.      Understand the foundation: the ability to read an income statement and a balance sheet, the difference between profit and cash, and other key concepts.
2.      Understand the art. Finance and accounting are an art as well as a science. The two disciplines must try to quantify what can’t always be quantified, and so must rely on rules, estimates, and assumptions.
3.      Understand analysis. Financial intelligence includes the ability to analyze the numbers in greater depth. This includes being able to calculate profitability, leverage, liquidity and efficiency ratios and understanding the meaning of the results. Conducting ROI analysis and interpreting the results are also part of financial intelligence.
4.      Understand the big picture. Financial intelligence also means being able to understand a business’s financial results in context - that is, within the framework of the big picture. Factors such as the economy, the competitive environment, regulations and changing customer needs and expectations as well as new technologies all affect how the numbers are interpreted.

Berman and Knight’s work in this area has proved so popular they even produced a comic book version for readers who prefer graphical storytelling! You can also take a nationally-validated online financial intelligence quiz and see how your knowledge stacks up to other managers.
When the topic came up with my millennial colleague, Brandon Wilson, I learned that Brandon’s been working steadily to increase his FI since graduating from college. Now that he’s active in the world of financial advisory services, Brandon has written an informative, no-BS approach entitled 5 Things Every College Student Should Know about Investing. I think you’ll find Brandon’s piece filled with insights and suggestions for building FI skills early. He offers the kind of pragmatic guidance that every person should receive before entering the work world!

Credit Richard Hagen (Tumbli )