126: Do You Know Your Financial IQ Score?

In this episode of BYFIQ, I dive into a fascinating analogy between overconfidence in the kitchen and financial literacy in business. It all started while watching an episode of MasterChef, one of my favorite shows. I was struck by the overconfidence of a contestant named Mark, who presented a lackluster breakfast to the judges, thinking he had the competition in the bag. This led me to reflect on my early days in business when I, too, was dangerously overconfident in my financial skills.

I share a personal story of running a multi-million dollar company without knowing how to read a financial statement, which resulted in costly mistakes and lost opportunities. This lack of awareness is similar to the infamous Dunning-Kruger effect, where people with little ability in a field overestimate their competence. I recount the unbelievable tale of two bank robbers who thought rubbing lemon juice on their faces would make them invisible to cameras—a clear example of the Dunning-Kruger effect in action.

Through these stories, I emphasize the importance of financial literacy and understanding your financial IQ. I invite you to take the financial IQ assessment at BYFIQ to identify areas where you might need improvement, whether it's the balance sheet, the statement of cash flows, or another aspect of finance. By applying financial principles to real-world situations, you can build critical skills that will significantly impact your career and business success.

Join me as I explore how recognizing our limitations and continuously learning can prevent us from making costly mistakes and help us grow more profitable businesses. And remember, confidence without competence can be dangerous—just like thinking lemon juice can make you invisible. Until next time, take care of yourself and keep learning. Cheers!

Here's how to get started with Boosting Your Financial IQ:

• Step 1:  Test your financial IQ for FREE
• Step 2: Download the FREE app
• Step 3:  Take the Fundamentals of Finance course

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Transcript

Speaker 1: 0:15

Welcome to BYFIQ, where we talk about business financial literacy, explore strategies for profitability and unlock the power of finance so you can make more money in business. I hope you enjoy and subscribe. The other night I was watching an episode of MasterChef, which is probably one of my favorite shows right now. It's a competition where home chefs compete in a series of cooking challenges to determine who is the ultimate culinary expert. Series of cooking challenges to determine who is the ultimate culinary expert. In each episode, participants are tasked with cooking a specific cuisine and then presenting their dishes to the judges, which include Gordon Ramsay, a world-class chef who I deeply admire. The judges then decide whether participants advance the next week or get eliminated. Now, bear with me. You may be thinking, steve, isn't this a financial podcast, not a cooking podcast? Yes, you're going to get the point here in just one minute Now.

Speaker 1: 1:04

In this particular episode which I was watching, there was a participant named Mark. He was given a basket of common household food items and had to prepare a meal that would impress the judges. Surprisingly, he chose to cook breakfast. Now, while breakfast is my favorite meal of the day, it doesn't necessarily come across as a sophisticated cuisine worthy of a master chef competition, at least in my opinion. Nonetheless, he made a pancake, some hash browns which looked like something you'd get from McDonald's, and then he cut up some apples, drizzling caramel syrup over them. When the judges called Mark to the front to present his meal, he confidently talked to the camera about how great he was and how he had the competition in the bag, because his plate was absolutely amazing. He thought he was so much better than everybody else. However, his confidence quickly deflated when the judges told him he was one of the three participants who made the worst meal out of nearly 20 others, which I thought was kind of funny to watch. What fascinated me was that Mark truly believed in his excellence. To any reasonable person, his pancake was boring, his hash browns were terrible, and cutting up fruit and drizzling caramel syrup on it didn't take much more skill than what an eight-year-old has. However, mark thought he was amazing and probably believed the judges were ignorant and unable to see his culinary genius.

Speaker 1: 2:32

I was dumbstruck by his arrogance and overconfidence in his incompetence. This reminded me of my early days in business, when I was running a multimillion dollar company and couldn't even read a financial statement. I didn't know what I didn't know, and that was extremely dangerous. And guess what? As a result, I left a ton of money on the table and made many financial mistakes that cost me time and energy to fix. It made me wonder how can we be so blinded by our incompetence or overconfidence in our abilities when that confidence is neither earned nor warranted. Pretty fascinating, right?

Speaker 1: 3:14

Let me share another story. On January 6th 1995, and I'm not making this up MacArthur Wheeler and Clifton Earl Johnson robbed a bank in Pittsburgh at gunpoint, without covering their faces or attempting to disguise their identities. Based on the camera footage, these men were quickly apprehended and, of course, sentenced to prison. When asked why they didn't try to conceal their faces, they answered that they thought rubbing lemon juice I'm not kidding here rubbing lemon juice on their faces would make them invisible to the cameras. It sounds absolutely crazy, right? They believe this because lemon juice can make invisible ink appear and therefore they believe for some reason that if they rub lemon juice on their face it would make them invisible. Now, since this incident, researchers have become fascinated by this phenomenon, leading to what is known as the Dunning-Kruger effect. This effect describes how people with little ability in a field can actually believe they excel in it.

Speaker 1: 4:17

Reflecting on my early days running a landscape business, I thought financial literacy was unnecessary and something my accountant should handle. In fact, I thought it was for the birds and the nerds. I believe that sheer work, ethic and grit instead would make me successful in business, and I didn't need to be one of those accounting folks who read financial statements. I had no concept of my incompetence in financial literacy. It wasn't until later, when I went back to school and I earned my degrees in accounting and finance, that I began to realize what I didn't know. But look, even after going through college, I entered the workforce believing I knew quite a bit about numbers and how they flow in business. Looking back now, though, I realize I still had significant gaps in my skillset, and I'll probably be saying the same thing in about five to 10 years. I'll look back on this podcast and I'll be like, oh my gosh, I lacked so much as it relates to financial literacy. But here's the deal Understanding our financial IQ is critical.

Speaker 1: 5:22

I wish there had been an assessment available when I was in business to gauge my understanding of business finance. So here's my invitation to you If you haven't already taken the financial IQ assessment at BYFIQ, be sure to do so. It will give you a starting point to understand your financial acumen. From there, what you could do is identify the areas in which you may struggle, such as the balance sheet or the statement of cash flows. Then you can start focusing on building skills in these areas.

Speaker 1: 5:53

As you learn principles of finance relate them to the real world. So if you're working for a company, try to get your hands on the financial statements so you can then apply your learnings to your actual business and see how these principles relate to your own financial statements. That's what I'd recommend. Now, if you're not working for a company, or perhaps maybe you're in school, you can always access publicly traded companies financial statements and look at the numbers and then apply your learnings to these businesses. So getting comfortable with the numbers and then understanding the story behind them will make all the difference in your career.

Speaker 1: 6:29

I can guarantee you this. When I look back at my success in business, I can point to the financial skills that I built along the way. There's no way that I'd be able to turn around companies and help them to grow and be more profitable if I didn't invest in my financial literacy, and I'm still doing that. Every single day, I'm learning new things as it relates to the world of accounting and finance, and you can do the same thing. It doesn't matter if you have a finance background or not. You can get started and you can start building these skills, which are gonna be really, really critical as you move forward in the world of business. All right, that's what I have for you today. I hope you have a great week, and just remember that lemon juice does not make you invisible. Until next episode, take care of yourself. Cheers.