What is an IQ? It's a measure of the knowledge or proficiency of an individual in something that has been learned or taught. It is an indicator, that out of the hundreds of mental abilities each person has, uses just a few that can be measured accurately and reliably to predict academic or financial success. Humans have hundreds of mental abilities and the tests we commonly refer to as IQ tests rely mostly on measurements of math and logic skills.
There are many definitions of the verb "to learn": to gain knowledge, comprehension, or mastery of through experience or study; to fix in the mind or memory; memorize; to acquire experience of or an ability or a skill in; to become aware; to become informed of; and find out. Of the variety of definitions of the verb “to learn”, focus on the first listed here- to gain knowledge, comprehension or mastery through experience or study. So in line with our definition of IQ, mastery of our financial matters through experience or study will increase our proficiency.
The verb "to teach" also has a variety of definitions: to impart knowledge or skill to; to provide knowledge of; instruct in; to condition to a certain action or frame of mind; to cause to learn by example or experience; to advocate or preach; and to carry on instruction on a regular basis in. Pay attention to the third on the list- to condition to a certain action or frame of mind. Once a person has acquired the knowledge of and mastery in a subject- such as managing your finances- that person can teach themselves. Train their minds through repetition of the mastered skill to automatically follow a certain pattern of thought.
Is it even possible to change IQ? Average IQ scores have increased by three points per decade during this century (Flynn Effect). We are not more intelligent than our ancestors, our world is just more complicated and in response we have developed greater abstract thought and problem solving skills. If we were actually becoming more intelligent, by working the Flynn effect backwards we would discover that very quickly in the history of time our predecessors would not have had the ability to discover, create and invent all that our current society is built on. We really are not any smarter- we are adapting to the demands of our environment.
Dr. Howard Gardner of Harvard University proposed that people are much more complex than standard testing suggested and that there are several types of intelligence…
The intelligence types he suggested were:
- Linguistic and verbal intelligence- indicates a person skilled with words
- Logical intelligence- a person who is naturally good with math and logic- this is traditionally what is measured in IQ tests
- Spatial intelligence means an ability to solve puzzles, manage the physical relationship between items and pictures
- Body/movement intelligence natural coordination and athletic ability, excelling at activities
- Musical intelligence relates to rhythms
- Interpersonal intelligence indicates a good communicator
- Intrapersonal intelligence indicates an ability to analyze things
- Naturalist intelligence is present in a person who is at ease with and understands the natural world
Much like learning styles- auditory, visual and tactile- awareness of our own strengths in learning patterns and intelligence allows us to adjust our approach to financial awareness or any subject to improve our chances of success.
We can use this information to develop financial IQ by acknowledging and making use of the different types of intelligence that lead to different ways of absorbing and utilizing data. Intelligence involves adapting to the changes and on-going demands of one’s environment and recognizing our need to adjust our financial management is the first step in adapting. Gaining improved understanding and mastery of financial skills can be obtained through experience and study. Repetition of these skills and attention to details will condition the mind to choose the action that is beneficial to our financial well-being.
Improved financial IQ, that measurement of our mastery and proficiency in managing our financial matters, can be obtained then through improving our financial frame of mind. Developing a frame of mind that will allow us to make the best choices for our situation is like creating a mental habit. Through skill acquisition and repetition, we will be able to analyze and execute the best choices more and more quickly until it becomes a virtually unconscious action.
The steps to adjusting our financial frame of mind and increasing our financial IQ are:
Develop Goals – both short term (less than a year) and long term (more than 2 years) and assign timelines to the stages of each goal.
Set Priorities - no two people have exactly the same priorities. Rank the importance of each goal.
Seek information - read, study, question, question, question! Continue to ask questions until a subject is fully understood. Do not be put off with partial responses. The process works best when we are fully informed.
Sort information according to relevance - Do not assume that one plan will work for all. Disregard information that is not relevant to the current goals and plan.
Implement what you have learned - take action! Open a savings account; fill out the paperwork for joining the 401k; sign up for a first time home buyers class. Whatever steps are involved in your goals, begin to take them.
Assess progress and adjust goals - Follow the timelines set at the beginning- every week, month, pay period, etc. The more frequently we assess progress, the quicker our new financial frame of mind will develop. For most financial decision, the time it takes to make a choice will go from hours to assess a choice, to minutes to instantly knowing when and how the choices presented to fit into the overall plan, if at all.
For increasing personal financial IQ, what areas of mastery need to be addressed? Before moving on to more complicated topics, such as long term investing and home ownership, there are foundation skills that must be mastered. Ownership and mastery of these skills will place us in a better position to take on the larger challenges as a well informed consumer with a clear financial plan:
- Budgeting
- Safeguarding Your Personal Information
- Credit File Maintenance
- Credit Usage
- Savings/Retirement
- Risk Abatement
- Personal Expenses
