What is data literacy in financial planning? It is a crucial element that superpowers a plan’s quality. It isn’t just for data experts. It is a core skill for all business professionals and makes or breaks the quality of a plan. Beyond technical prowess, it also encompasses soft skills. Much like traditional literacy, it’s an ongoing journey rather than a fixed destination. This involves understanding and enhancing abilities related to data utilization, including recognizing data types, comprehending correlations, and interpreting charts. But it’s not just about numbers. Communication, problem-solving, and emotional intelligence are also integral. Learning to harness data literacy ensures that a financial plan represents the underlying strategic plan and can stand the test of time.
What is Data Literacy?
Through data literacy, individuals gain insight into their data and can make well-informed decisions based on it. It combines technical and soft skills and is relevant for everyone, not just data specialists. Like traditional literacy, there is no fixed end goal in data literacy. For instance, improving data literacy means understanding and improving one’s skill set in utilizing data. 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.
Why is Data Literacy Important for Financial Planning?
Data literacy is crucial in the world of financial planning. The best plans always involve finding all data that is relevant to the plan and utilizing it to make the best-informed decisions. To do that, planners must grasp which data impacts the plan and why. Besides, they must know how to find the data and the best way to analyze it. Yet, data literacy soft skills are just as crucial in the process. The data rarely tells the whole story, so planners’ communicative abilities are essential. Communication with others is also vital to get information that supports a deeper understanding of the data. Similarly, emotional intelligence is a necessity. A plan is more powerful when it is a product of collaboration between various stakeholder groups, and the planner must be able to ensure that.
Benefits of Data Literacy for Financial Planning
There are many benefits to ensuring that data literacy is as high as possible during the planning process. A key to planning well is being laser-focused on the strategic question at hand. Furthermore, it is only through taking a broad perspective that one can avoid overlooking anything in the plan. Data literacy is the doorway to making that possible. The higher a person’s data literacy, the more likely they are to:
- Understand which data is relevant to the strategic question
- Find correlations between different data sets
- Detect unexpected trends in the data and figure their importance out
- Observe information that they receive through the eyes of its potential importance for the plan
- Find biases in the data
- Recognize that an unsuitable set of base data is being used to assess past or predict future trends
It’s crucial to point out that these skills are relevant for all different types of people. Various stakeholders must review data both from a technical perspective and from the business side. With data literacy skills, it is possible to have the broadest potential information base, resulting in better organizational decisions.
Making strategic decisions based on a complete picture
In essence, financial planning involves putting strategic plans in a figure-based structure. It chronicles how concrete financial steps will answer the “how” in implementing a company’s strategy. Thus, the plan can only be complete when all stakeholders in the strategy understand the plan and have given their valuable input. The higher the data literacy, the better the quality of the various inputs. This ensures that the plan represents the whole picture coming from the data.
Identifying risks and indirect impacts
The key to a great financial plan is recognizing risks that can undermine the expected outcomes. The higher the level of data literacy, the more likely a person is to spot seemingly unrelated information that can impact the plan. Data-literate people will understand the correlation and causation between different pieces of information faster. Thus allowing the organization to build them into the plan.
Getting other stakeholders on board
As mentioned, the effectiveness of a plan depends on all stakeholders being on board. This is where the soft skills of data literacy come into play. The higher the data literacy level, the better a person will be at communicating insights. Moreover, they will be adept at resolving conflicts in the interpretation of data and motivating others to participate in planning.
How to Use Data Literacy in Financial Planning
Although the value of increased data literacy during the planning process may be clear, getting started may take work. Often, people equate data literacy initiatives with the need to become data scientists. This makes them hesitant to engage. For this reason, it’s essential to consider the human aspect. Data is the base of a financial plan, but the difference in quality depends on how people use it.
Meet people at their data literacy level
Throughout this article, I’ve been careful to speak about data literacy being “as high as possible.” I wanted to emphasize that there isn’t a set level of data literacy to strive for. Mindsets of having to “be data literate enough” discourage people from working to improve their level. Thus, when working on the plan, approach people from their level of data literacy. If they have an advanced understanding, feel free to discuss complex topics. Yet, if they are beginners, approach them with the basics of viewing the plan from a data literacy perspective.
Talk about it from a data perspective
Words matter, even more so when trying to get people to think and act in a certain way. For this reason, talking about things from a data perspective is critical. Use the word data frequently, but connect it with understandable, specific decisions or trends linked to it. Use data storytelling to engage the audience’s attention. This increases understanding of the thought process that the data led you through during the planning process. Make sure to link the strategic plan with the data, carefully making sure to know the data literacy level of your audience. Again, talk to people at their level of data literacy.
Conclusion: use data literacy to superpower the financial plan
Data literacy in financial planning is imperative to leverage data’s power to make a great plan. Financial planners can craft more precise and adaptable plans by embracing data-driven insights and considering technical and soft skills. Higher data literacy enriches strategic thinking, aids in identifying risks and trends, and fosters effective stakeholder engagement. Remember, it’s not about being a data scientist but about understanding data’s role in planning for all stakeholders. So, meet people where they are on the data literacy spectrum, weave data perspectives into discussions, and align plans with the comprehensive insights data. This ensures more robust, informed financial planning.
Data leaders can be critical allies in getting the organization to increase data literacy. Check out these articles for additional info on them: