by Andy Canada
If you answered yes, you are not alone.
In a recent financial literacy survey conducted by the Center on Philanthropy at Indiana University and sponsored by Moody’s Financial, 76 percent of nonprofit managers considered themselves financially “knowledgeable” and another 7 percent claimed to be “experts” in that regard.
Unfortunately, if you are like the average nonprofit manager, there is a decent chance you overestimate your level of financial understanding.
In reality, only a third of respondents were able to correctly answer a series of three questions on basic financial concepts like inflation, investment risks, and diversification.
While nonprofit managers are not expected to be Warren Buffett, when donors make a gift, they expect it to be competently managed, especially when that gift is meant to be held in an endowment.
We don’t have to look too far back to see significant examples of financial naivety costing nonprofits and foundations dearly. Whether falling victim to criminal schemes like the one perpetrated by Bernie Madoff, or leaving themselves overly exposed to volatile market fluctuations, a number of nonprofits have paid a high price for not arming themselves with the appropriate expertise and assistance in financial dealings.
The silver lining to this news is that nonprofit managers were more knowledgeable than the public at large. But nonprofits don’t have to compete with the general public for donations. They compete with each other.
In an environment where nonprofits are increasingly coming under scrutiny from donors and regulators, it is important for nonprofit managers and their boards to honestly assess their own knowledge and practices to avoid missteps that could have a long-term impact on donor confidence.
So, take some time to crack open that Finance 101 book and brush up on your financial knowledge. It will pay dividends.