What is data literacy in financial planning? It is a crucial element that superpowers a plan’s quality. Being data literate means understanding and using data to make informed decisions. It is a critical skill for financial planning, allowing planners to identify trends, risks, and opportunities. Data literacy also helps them to communicate with stakeholders and to build trust. This isn’t only for data experts. All business professionals need it, and it ensures the quality of a plan.
What is Data Literacy?
Data literacy allows people to gain insight into their data and make well-informed decisions. Like traditional literacy, there is no fixed end goal. Improving data literacy means striving to get better constantly. It combines technical and soft skills and goes well beyond data science. Typical examples are technical skills such as recognizing different data types, knowing statistical concepts such as correlation, and interpreting charts. Yet, it also includes crucial soft skills such as communication, problem-solving, and emotional intelligence.
What is the link between Data Literacy and Financial Planning?
Data literacy is a core element of financial planning. Making the most informed decisions requires finding and utilizing all relevant data. Planners must understand which data impacts the plan and why. Yet, the data rarely tells the whole story, so communicative abilities must be strong. The planner must ensure that a plan results from the collaboration between various stakeholder groups for effectiveness.
Data Literacy to Plan Your Financial Future
Planning well requires a laser focus on the strategic question. Furthermore, only a broad perspective can avoid overlooking anything in the plan. Data literacy is the doorway to that possibility. Data literacy increases a person’s likelihood of::
- Finding all data that is relevant to the strategic question
- Identifying correlations between data sets
- Seeing unexpected trends in the data and appreciating their importance
- Recognizing biases in the data
- Spotting that a set of base data being used to assess past or predict future trends isn’t ideal
Various types of people must review data from a technical perspective and the business side. It is possible to make better organizational decisions with data literacy skills.
Using a comprehensive picture to make strategic decisions
Financial planning involves putting strategic plans into a figure-based structure. It defines how a company’s strategy should be implemented through concrete financial steps. The higher the data literacy, the better the quality of inputs from various stakeholders. That way, the plan represents the whole picture coming from the data.
Assessing indirect impacts and risks
Great financial plans recognize risks that can undermine the expected outcomes. Better data literacy increases the likelihood that a person will spot seemingly unrelated information that can impact the plan. Data-literate people will understand the correlation and causation between different pieces of information that could affect the plan faster.
Engaging other stakeholders
The effectiveness of a plan depends on the involvement of all stakeholders. This is why soft skills are such an essential part of data literacy. People with higher data literacy levels will be better at communicating insights. They will manage to resolve conflicts in the interpretation of data and motivate others to participate in the planning process.
A Guide to Using Data Literacy in Financial Planning
Despite the apparent value of increased data literacy within the planning process may be clear, getting started may take work. Often, people are hesitant to engage because they equate data literacy initiatives with the need to become data scientists. For this reason, it’s essential to approach the issue from the human perspective.
Reach out to people based on their level of data literacy
Mindsets of striving to “be data literate enough” discourage people from working to improve their level. Thus, when working on the plan, reach out to people on their level of data literacy. Advanced users can be approached to discuss complex topics. If they are beginners, first provide them with the basics of viewing the plan from a data literacy standpoint.
Data-driven discussion
Words are essential when trying to get people to think and act in a certain way. Talking about things from a data perspective is critical to help people learn a data literacy mindset. Using data storytelling catches the audience’s attention and ensures understanding. Be sure to connect your strategic plan with data and to know your audience’s data literacy level.
Conclusion: more robust, informed financial plan
In financial planning, data literacy is imperative to making a great plan. By incorporating data-driven insights and considering technical and soft skills, financial planners can craft more precise and adaptive plans. Data literacy enhances strategic thinking, identifies risks and trends, and fosters stakeholder engagement. Meet people where they are on the data literacy spectrum, incorporate data perspectives into discussions, and align plans with strategic insights. The result is a more robust, informed financial plan.
A longer version of this article can be found here: Data literacy in financial planning – ANGELINE CORVAGLIA