Financial Quotient (FQ)

I guess every one knows what is Intelligence Quotient (IQ) and may be some of you know the meaning of Emotional Quotient (EQ). But does anyone know what is Financial Quotient (FQ)?

Basically, Intelligence Quotient (IQ) is to measure the intellectual of a person in solving problems especially in Mathematics related problems. It was first used about 100 years ago by Alfred Binet to identify students who needed special help in coping with the school curriculum. Since IQ first appeared, it has been evolved to many forms. There are many IQ tests that you can find from The Internet and some of them are just for entertainment purpose. I found an interesting IQ test designed by Einstein, you might want to try it out (Einstein IQ Test).

Next, Emotional Quotient (EQ) or Emotional Intelligence (EI) was first used in 1985 but it was only popularized after Daniel Goleman published his best seller book "Emotional Intelligence: Why It Can Matter More Than IQ" in 1996.

Goleman's model outlines four main EI constructs:
1. Self-awareness - the ability to read one's emotions and recognize their impact while using gut feelings to guide decisions.
2. Self-management - involves controlling one's emotions and impulses and adapting to changing circumstances.
3. Social awareness - the ability to sense, understand, and react to other's emotions while comprehending social networks.
4. Relationship management - the ability to inspire, influence, and develop others while managing conflict.

There are debates that EQ is more important than IQ which I am agree with. I personally know a guy with very high IQ ( he scored CGPA of 3.99 in University) but his EQ is very low. He can easily become angry over small things and can easily get insulted when people make joke on him.

Since IQ and EQ are not the main subjects in my post, I leave them for you to explore on your own.

Financial Quotient (FQ)
It is a new phrase that I could not even find its meaning from Wikipedia. Financial Quotient is about the intelligence on managing your money, income, expenses, investment and just anything else that involves money (eg: Mortgage payment, Credit card interest, housing loan, study loan, income tax, insurance and more).

Some common questions that may come across your mind daily.
1. Should I rent a house or buy a house and get a loan?
2. Should I buy the $1 million house or the $500k house?
3. How much housing loan should I take and how much should I pay every month?
4. Should I spend using credit card? Should I pay in full for credit card debt before month end or pay it slowly?
5. Should I pay the study loan at once after I graduated? or should I pay it slowly every month.
6. Show I change to a better pay job but less free time spent for family? or stay in a job that has less pay but have more free time for family and have time to plan for my own business?
7. Insurance Policy A or B is better to prepare for retirement?
8. How much income tax should I pay?

My answer for question 5: I have 2 study loans, one has been converted to scholarship and the other I am paying very little amount monthly as it has very low interest (3% pa),

My answer for question 6: I prefer a low pay job so that I have more free time to think of any opportunity for me to start up my own business and use my free time to learn more about investment.

My answer for question 7: At the moment, I have only Personal Accident Insurance Policy. I am still considering to buy another insurance (Investment-linked Life Insurance Policy).

I do not have answer for the other 5 questions. The reason is I am just graduated from university about a year ago, I am not buying any house at the moment, I do not have credit card yet and my income is not enough for me to declare income tax. But I know that I will have to answer all the above questions not far in the future, so I am now preparing myself for them and this is also the purpose I create this blog and share my journey in improving my Financial Quotient and achieving Financial Freedom.

I found one self Assessment about ones Financial Quotient (FQ), it is call Wheel of Financial Freedom. It is using 10 criteria (Debt, Retire, Reserves, Save, Budget, Taxes, Financial Plan, Career, Worth, Will) to assess how financially free is a person. I personally think that the criteria are good but the scoring system is not clearly defined. I tried to e-mail the author but my e-mail bound back due to "Mailbox quote exceeded" and I think the web site has not been updated for a while (may be since year 2003).

I also found another Financial Quotient test over here. If you want to, after you have done the test, just send in comment and let me know your score.