Financial literacy skills level among small and medium scale businesses: lessons for entrepreneurial decision-making in Lagos, Nigeria
Abstract
Remarking on the strategic significance of Small and Medium Scale Enterprise (SMEs) as critical to any economy growth and employment creation opportunities, there are evidence that support the poor possession of the appropriate financial literacy skills and knowledge, required by SMEs to effectively make entrepreneurial decision, needed for business growth and the overall economic development. Previous studies on the leitmotif of financial literacy skills have largely been interrogated through the prism of financial institutions and as an indicator for gauging inclusion leaving sparse research attention to understand its implications on entrepreneurial decision making among SMEs. This research chasm provoked this study. The aim of this paper to dissect and understand the place of financial literacy skills and knowledge in entrepreneurial decision-making of SMEs. A total of 15 SMEs were recruited on purpose with the semi-structure interview type, used in eliciting qualitative data. A collection of different themes and sub-themes were identified with the application of the NVivo (v.12) qualitative software and analysed with the content qualitative analytical tool. Pattern and level of financial literacy include understanding of financial decision, management of money and implementation of financial decision. SMEs’ financial literacy, required for effective entrepreneurial decision, includes knowledge on profitability, cash management skills and knowledge on investment with accompanied challenges, such as bad financial behaviour, financial irresponsibility and lack of basic education. The study makes a genuine case for the prioritization of the importance of financial literacy skills and knowledge for clear cut entrepreneurial decisionmaking and growth.
Downloads
References
Umogbaimonica, E., Agwa, T. R., Asenge, L. E. (2018). Financial literacy and performance of small and medium scale enterprises in Benue State, Nigeria. International Journal of Economic and Business Management Research, 2 (4), 65–79.
Adeola, O., Evans, O. (2017). Financial inclusion, financial development, and economic diversification in Nigeria. The Journal of Developing Areas, 51 (3), 1–15. doi: https://doi.org/10.1353/jda.2017.0057
Potrich, A. C. G., Vieira, K. M., Mendes-Da-Silva, W. (2016). Development of a financial literacy model for university students. Management Research Review, 39 (3), 356–376. doi: https://doi.org/10.1108/mrr-06-2014-0143
Lusardi, A., Mitchell, O. S. (2014). The Economic Importance of Financial Literacy: Theory and Evidence. Journal of Economic Literature, 52 (1), 5–44. doi: https://doi.org/10.1257/jel.52.1.5
Matewos, K. R., Navkiranjit, K. D., Jasmindeep, K. (2016). Financial literacy for developing countries in Africa: A review of concept, significance and research opportunities. Journal of African Studies and Development, 8 (1), 1–12. doi: https://doi.org/10.5897/jasd2015.0331
Sekita, S. (2011). Financial literacy and retirement planning in Japan. Journal of Pension Economics and Finance, 10 (4), 637–656. doi: https://doi.org/10.1017/s1474747211000527
Egbo, O. P., Ezeaku, H., Igwemeka, E., Okeke, O. M. (2020). Financial literacy and access: revisiting the bridges and barriers to women entrepreneurship in Nigeria. Revista Amazonia Investiga, 9 (29), 436–444. doi: https://doi.org/10.34069/ai/2020.29.05.48
Iriobe, O. C., Akindele, O. M., Iriobe, G. O. (2017). Financial literacy and financial inclusion for entrepreneurship development in Nigeria. Journal of Business Management Science, 7 (1), 63–69.
Usama, K. M., Yusoff, W. F. W. (2018). The relationship between entrepreneurs’ financial literacy and business performance among entrepreneurs of Bauchi State, Nigeria. International Journal of Entrepreneurship and Business Innovation, 1 (1), 15–26.
Tang, N., Baker, A., Peter, P. C. (2015). Investigating the Disconnect between Financial Knowledge and Behavior: The Role of Parental Influence and Psychological Characteristics in Responsible Financial Behaviors among Young Adults. Journal of Consumer Affairs, 49 (2), 376–406. doi: https://doi.org/10.1111/joca.12069
Xiao, J. J., Porto, N. (2017). Financial education and financial satisfaction: Financial literacy, behavior, and capability as mediators. International Journal of Bank Market, 35 (5), 805–817. doi: https://doi.org/10.1108/ijbm-01-2016-0009
Akhtar, S., Liu, Y. (2018). SME Managers and Financial Literacy; Does Financial Literacy Really Matter? Journal of Public Administration and Governance, 8 (3), 353–373. doi: https://doi.org/10.5296/jpag.v8i3.13539
Kalsum, U., Sarita, B., Cahyono, E., Wawo, A. B. (2018). Effect of financial literacy and investment experience on access to finance and investment decisions in small enterprises in Southeast Sulawesi. International Journal of Scientific and Engineering Research, 9 (2), 849–857.
Eniola, A. A., Entebang, H. (2017). SME Managers and Financial Literacy. Global Business Review, 18 (3), 559–576. doi: https://doi.org/10.1177/0972150917692063
Bellofatto, A., D’Hondt, C., De Winne, R. (2018). Subjective financial literacy and retail investors’ behavior. Journal of Banking & Finance, 92, 168–181. doi: https://doi.org/10.1016/j.jbankfin.2018.05.004
Mouna, A., Anis, J. (2017). Financial literacy in Tunisia: Its determinants and its implications on investment behavior. Research in International Business and Finance, 39, 568–577. doi: https://doi.org/10.1016/j.ribaf.2016.09.018
Anderson, A., Baker, F., Robinson, D. T. (2017). Precautionary savings, retirement planning and misperceptions of financial literacy. Journal of Financial Economics, 126 (2), 383–398. doi: https://doi.org/10.1016/j.jfineco.2017.07.008
Bertello, A., Ferraris, A., De Bernardi, P., Bertoldi, B. (2021). Challenges to open innovation in traditional SMEs: an analysis of pre-competitive projects in university-industry-government collaboration. International Entrepreneurship and Management Journal, 18 (1), 89–104. doi: https://doi.org/10.1007/s11365-020-00727-1
Lončar, I., Golemac, Z. (2014). Changing students’ financial knowledge through different levels of economic university education. Journal of Educational and Social Research, 4 (4), 150–165.
Boisclair, D., Lusardi, A., Michaud, P.-C. (2015). Financial literacy and retirement planning in Canada. Journal of Pension Economics and Finance, 16 (3), 277–296. doi: https://doi.org/10.1017/s1474747215000311
Fatoki, O. (2014). The Financial Literacy of Micro Entrepreneurs in South Africa. Journal of Social Sciences, 40 (2), 151–158. doi: https://doi.org/10.1080/09718923.2014.11893311
Mabula, J. B., Dong, H. (2018). Financial Literacy of SME Managers’ on Access to Finance and Performance: The Mediating Role of Financial Service Utilization. International Journal of Advanced Computer Science and Applications, 9 (9), 32–41. doi: https://doi.org/10.14569/ijacsa.2018.090905
Mitchell, O. S., Lusardi, A. (2015). Financial Literacy and Economic Outcomes: Evidence and Policy Implications. The Journal of Retirement, 3 (1), 107–114. doi: https://doi.org/10.3905/jor.2015.3.1.107
Singh, R. R., Sarva, M., Sharma, M. (2020). Investment behaviour and risk-taking ability among retail investor: role of demographic factors. Journal of Archaeology of Egypt-Egyptology, 17 (9), 5902–5926.
Faleye, O., Krishnan, K. (2017). Risky lending: Does bank corporate governance matter? Journal of Banking & Finance, 83 (3), 57–69. doi: https://doi.org/10.1016/j.jbankfin.2017.06.011
Chepkemoi, M., Patrick, E., Njoroge, C. (2017). The effects of financial literacy training on business profitability in Coastal Region: A case of Kwale country SMEs. Strategic Journal of Business and Change Management, 4 (3), 684–703.
Herdjiono, I., Damanik, L. A. (2016). Pengaruh Financial Attitude,Financial Knowledge, Parental Income Terhadap Financial Management Behavior. Jurnal Manajemen Teori Dan Terapan| Journal of Theory and Applied Management, 9 (3), 226–241. doi: https://doi.org/10.20473/jmtt.v9i3.3077
Kershaw, M. M., Webber, L. S. (2008). Assessment of Financial Competence. Psychiatry, Psychology and Law, 15 (1), 40–55. doi: https://doi.org/10.1080/13218710701873965
Jiang, S. S., Dunn, L. F. (2012). New evidence on credit card borrowing and repayment patterns. Economic Inquiry, 51 (1), 394–407. doi: https://doi.org/10.1111/j.1465-7295.2012.00456.x
Garg, N., Singh, S. (2018). Financial literacy among youth. International Journal of Social Economics, 45 (1), 173–186. doi: https://doi.org/10.1108/ijse-11-2016-0303
Chan, S. F., Chau, A. W. L., Chan, K. Y. K. (2012). Financial knowledge and aptitudes: Impacts on college students’ financial well-being. College Student Journal, 46 (1), 114–132.
Struwig, J., Roberts, B., Gordon, S. (2013). Financial literacy in South Africa. Results of a 2012 national survey update. Report prepared by the Human Sciences Research Council on behalf of the Financial Services Board. Pretoria: Financial Services Board.
Creswell, J. W. (2014). Research design: qualitative, quantitative and mixed methods approach. California: Sage Publications, 270.
Shields, P. M., Rangarajan, N. (2013). A playbook for research methods: integrating conceptual frameworks and project management. Oklahoma: New Forums Press.
Sekaran, U., Bougie, R. (2016). Research methods for business: a skill-building approach. John Wiley and Sons Limited.
Quinlan, C. (2011). Business research methods. South-western: Cengage Learning.
Saunders, M., Lewis, P., Thornhill, A. (2009). Research methods for the business student. Pearson Education Limited.
Trochim, W. M. K., Donnelly, J. (2007). The research methods knowledge base. Mason: Thomson Custom Publishing.
Copyright (c) 2023 Samson Adewumi, Simangele Constance Cele
This work is licensed under a Creative Commons Attribution 4.0 International License.
Our journal abides by the Creative Commons CC BY copyright rights and permissions for open access journals.
Authors, who are published in this journal, agree to the following conditions:
1. The authors reserve the right to authorship of the work and pass the first publication right of this work to the journal under the terms of a Creative Commons CC BY, which allows others to freely distribute the published research with the obligatory reference to the authors of the original work and the first publication of the work in this journal.
2. The authors have the right to conclude separate supplement agreements that relate to non-exclusive work distribution in the form in which it has been published by the journal (for example, to upload the work to the online storage of the journal or publish it as part of a monograph), provided that the reference to the first publication of the work in this journal is included.
