What is financial literacy?

It is commonly defined as one’s understanding of finance and the science of funds management. A person’s financial literacy allows them to make informed decisions about either personal finance or business finance or both. The President’s Advisory Council on Financial Literacy defined the term as “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.”

What are the basic concepts?

Some of the basic concepts involved in financial literacy include understanding credit, loans, insurance, interest, exchange rates, investments, financial planning, and the risks of finance. With so many young people today growing up to be financially illiterate - unable to manage their finances and/or effectively plan for the future financially - government and educational programs have recently become more focused on basic understanding, a movement that has redefined the term “financial literacy” with a focus on one’s ability to understand and manage personal finances and future financial planning.

Business finance has an entirely different focus when it comes to financial literacy, with a much deeper level of understanding of both basic and advanced business concepts required by individuals to effectively function in a business executive or business management capacity. A sampling of the basic concepts required for financial literacy in a business environment include:

• Financial statements
• Financial reporting
• Balance sheets
• Assets
• Liabilities
• Tax concepts
• Income statements
• Gross margins
• Recording a loss
• Cash flow and cash flow statements
• Internal and external auditing
• Internal control over financial reporting
• Fraud prevention and detection

More about the Quiz Itself

The quiz focuses on financial literacy in a business finance capacity, with a focus on financial reporting. The quiz is meant to help individuals identify gaps in their knowledge of financial reporting so they can seek out additional business finance education opportunities. You can find and complete this year’s quiz online.

Originally published in the ’90s by Phil Livingston, Roman Weil, and John Stewart, this second edition includes new questions on developments in accounting and auditing standards, legislation, and regulation. It also incorporates questions about fraud prevention and detection.

The quiz was launched in the period immediately preceding the Sarbanes-Oxley Act, when there was increasing focus on the need to strengthen audit committees, and the primary audience for the quiz as originally constructed was for audit committee members. The Sarbanes-Oxley legislation came into force in 2002. It introduced major changes to the regulation of financial practice and corporate governance.

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