Assessing the Effect of Financial Literacy Among Managers on the Performance of Small-Scale Enterprises

Abstract

The small-scale sub-sector continues to be a fundamental catalyst for job creation and economic growth in Ghana. About 35 per cent of labour is provided by the sub-sector and shows the importance of harnessing its potentials in developing the Ghanaian economy. It has been established that financial literacy has a significant influence on whether or not small-scale enterprises succeed. Yet, the exact effect of financial literacy on small-scale enterprise performance has not been fully identified in Ghana, hence the need for the present study. This study examines the effect of financial literacy (awareness, attitude and knowledge) of managers on the performance (financial and non-financial) of small-scale enterprises in the La Nkwantanang Madina Municipality of Ghana. Primary data were obtained from 200 small-scale managers through structured questionnaires. The data were analysed using structural equation model. The results revealed a significant effect of financial literacy on firm performance (both financial and non-financial performance). Also, all the three components of financial literacy (awareness, attitude and knowledge) have a significant positive effect on both financial and non-financial performance. However, individual characteristics (age of the individual, educational level and experience) have no significant effect on financial performance, whereas tax becomes useful when used as a regulatory tool of small enterprises. Capacity building programmes are therefore recommended to increase financial literacy among managers/owners of small-scale enterprises.

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“…The level of financial literacy of MSME owners has a positive impact on the financial performance of an MSME. Therefore, a high level of literacy can improve the financial performance of the Sukaregang tanning industry, which is still classified as MSMEs [38,39]. Based on the results of research that has been done, the financial performance of the Sukaregang tannery industry can be seen in Table 8.…”

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“…However, the level of financial knowledge of each individual is different, depending on the individual's ability to absorb existing information or knowledge. A person who has a low level of financial knowledge will experience difficulties and lack of skills in managing company finances (Tuffour et al, 2020), and this is one of the factors that lack the motivation to be actively involved in personal and corporate financial planning (Loke, 2015). Conversely, someone who has a high level of financial knowledge will have a sense of self-confidence related to financial knowledge, financial products, financial concepts, and decision making related to finance.…”

“…The results of this analysis are not surprising, because the results of the analysis of financial knowledge variables also explain that business owners have a low level of knowledge about financial management both in the short term and in the perspective. The low level of financial knowledge that is owned will have an impact on the difficulties and skills shortages in managing company finances (Tuffour et al, 2020), and become one of the factors for the lack of motivation to be actively involved in personal and corporate financial planning (Loke, 2015). The results of the interview also confirm this opinion: "Although currently there are many financial literacy empowerment programs, they are still in the category of general matters, such as access to capital, basic matters of finance, marketing, and product quality standards.…”

Financial Performance of SMEs in Kota Bharu, Kelantan During the COVID-19 Pandemic

“…However, the financial aspect is vital in organisation performance. According to Tuffour et al (2020), around 35 per cent of work is given by the sub-area, indicating the significance of outfitting the possibilities in developing the Ghanaian economy. Hence, budgetary proficiency impacts whether little scope endeavours succeed.…”