Financial Literacy and Knowledge in the Nonprofit Sector

Abstract

Financial literacy and knowledge play a vital role in the creation and sustainability of a vibrant nonprofit sector, particularly in the current economic environment. For the past two decades, a growing wealth of economic and financial data has become available to help inform effective decision-making within the nonprofit sector. It has become increasingly important for nonprofit organizations to have the knowledge and skills that are necessary to apply and use this data for decision-making and benchmarking. However, little is known about the current state of financial literacy and knowledge at nonprofit organizations. One major purpose of this study is to fill this gap by investigating nonprofit organizations’ financial literacy and knowledge and exploring how such knowledge informs their practices. The 2011 Financial Literacy and Knowledge in the Nonprofit Sector report offers new insights on the resources nonprofit organizations use to manage their finances, identifies best practices in financial decision-making, and provides suggestions for improving financial planning in the long term. Conducted by the Center on Philanthropy, in collaboration with The Moody’s Foundation, this study seeks to better understand nonprofit organizations’ financial literacy and knowledge as well as the financial practices these organizations currently adopt. A composite definition of financial literacy is: The knowledge and skills of basic economic and financial concepts, as well as the ability to apply this knowledge in order to manage financial resources effectively.