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FMI
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IGF JOURNAL
VOLUME 25, NO. 1
What is Financial Literacy for the Public Manager?
The Answer is A Two-Way Street
Andrew Graham
“They Just Don’t Get It”
In my teaching as well as my interaction
with senior government officials and
commentators, I hear that there is a
dearth of what they describe as financial
literacy when it comes to sound public
administration. This manifests itself in a
number of ways, often reflecting the biases
of the observer. For the senior government
executive, there is a frustration that bright
policy or operational public servants
arrive in positions of responsibility poorly
equipped to effectively manage their
financial accountabilities. They rely too
often on the school of hard knocks to
pick up their financial skills. In addition,
they fail to take cost and related financial
implications into account when they make
proposals. Most tellingly in today’s focus on
budget deficits, they do not focus enough
on cost reduction or cost avoidance.
When I teach public servants in our
professional program, they often feel
uncertain about their financial roles. Many
times, they have no clear sense of where
their roles start and those of financial
advisors end, not an easy question. They
are uncertain about what level of financial
expertise they need to get the job done. I
can almost hear some of them asking “Am I
there yet?” when it comes to understanding
their financial role and executing it
effectively. The reality, of course, is that
they are never fully there as the demands
of the work evolve and respond to the
changing environment of public sector
financial management.
Too many times has the phrase “They
just don’t get it.” been applied by senior
executives or financial experts to public
sector managers in general. What don’t
they get? The need for effective financial
control. The need to reduce budgets. The
need for good costing. The need to find
new ways to finance projects. Often these
deficiencies in individual managers are
identified by the very people responsible
for the strategic management of their
department or agency.
There certainly is an underlying theme
literacy is missing in some governments,
yet abounds in others, the question has
to go back to the executives and experts –
what are you doing about it, then?
The Financially Literate Manager
However, too much mystery surrounds this
question. Financial literacy is not magic,
just work. It certainly does not mean that
line managers have to become financial
experts. But they do have to become
informed users of financial information,
not just when it arrives as a regular report
in their e-mail or on the department’s
website, but throughout the policy and
delivery processes.
Here are some of the characteristics of
a financially literate public sector manager.
He or she:
• Understands how policy, delivery and
costs are linked;
• Can identify the key assumptions behind
numbers and link them to the policy or
to the delivery environment;
• Applies a full life-cycle and secondary
cost lens to recommendations;
• Can identify and, with experience,
anticipate the cost impacts of events,
changes or those many small decisions
that get made on a daily basis;
• Is aware of the financial framework
within which his or her unit is working
– budget limitations, opportunities,
strategic directions;
• Understands his or her own budget, the
components, the anticipated outputs it
should produce and how those numbers
relate to the public policy good they are
working to achieve;
that financial literacy, however defined,
is one quality that needs work in many
governments. Financial literacy among
public servants is vitally important for
the effective and efficient delivery of
public goods. Why? Because very few
policy pronouncements mean much until
we know what resources are going to go
into making them happen. Further, as
governments strive to reduce their overall
expenditures, the impacts of changes in
policy, delivery and finances become even
more linked. We are also seeing a worthy
focus on the intergenerational impact of
policy decisions. The introduction of full
accrual accounting and budgeting has
reduced the capacity of government to
make announcements today without taking
into account the costs in the future.
Finally, public reaction to financial
missteps in government creates the notion
that public managers cannot manage the
funds effectively – to get the work done,
efficiently – best bang for the buck and
properly – by the rules and with probity.
The truth, seldom finding itself onto the
headline page of media websites, is that
most government officials do all three
quite effectively. However, we cannot
be naïve. These scandals raise again, in
a different way, the question of what is
enough financial literacy and “Are we there
yet?”.
But, is there a there? I am not sure
that we could collectively agree on what
financial literacy actually is and, even more
daunting, when we have it. What I would
like to do is offer some ideas about what
financial literacy actually is for the public
manager. My conclusion, however, is that
financial literacy will only be achieved
when we realize that it is a two way street.
To have a financially literate manager, you
need a financially literate organization.
This is more than just a matter of personal
skills and training. In fact, it takes
leadership and good governance too. So,
for those top managers complaining about
the financial prowess of their managers,
tend to your own role in all this. More
to follow. It would seem that if financial
