Financial Literacy and Financial Performance of Small and Medium-sized Enterprises (2024)

FAQs

How does financial literacy affect financial performance? ›

Managers/owners with financial literacy skills understand business-related financial concepts, including debt, savings, takaful, insurance, and investment, which ensure the good performance of their business.

The result of the regression analysis adopted revealed that Financial Management Practice exerts a positive effect on the financial performance of SMEs in Lagos state Nigeria. This paper suggested that SMEs should embrace best financial management practices to enhance their overall performances.

Financial literacy is the knowledge and ability to manage your money in a way that helps you grow stability and feel confident and resilient. Key aspects of financial literacy are budgeting, saving and managing debt.

A strong foundation of financial literacy can help support various life goals, such as saving for education or retirement, using debt responsibly, and running a business. Key aspects of financial literacy include knowing how to create a budget, plan for retirement, manage debt, and track personal spending.

Students classify those characteristics based on the three C's of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these characteristics, and then decide whether or not to approve or deny the loan request.

Key steps to attaining financial literacy include learning how to create a budget, track spending, pay off debt, and plan for retirement.

Financial literacy is having a basic grasp of money matters and its four fundamental pillars: debt, budgeting, saving, and investing.

Challenges in Indian MSME financing include limited access to credit, high interest rates, inadequate collateral, complex documentation, and regulatory hurdles, that hinder the growth of small and medium enterprises.

What is the role of financial management in small and medium scale enterprises? ›

Financial management is one of several functional areas of management but it is central to the success of any small business (Meredith, 1986). Financial management is the management of finances of a business in order to achieve the financial objectives of the business.

From the theoretical basis and the results of previous research, it can be seen that factors affecting the performance of an SME include two elements: subjective factors such as solvency, firm size, growth rate, access to credit institutions, labor qualifications and duration of operating time of the business; and ...

1. Budget your money. In general, there are four main uses for money: spending, saving, investing and giving away. Finding the right balance among these four categories is essential, and a budget can be a very useful tool to help you accomplish this.

By combining the golden rule of “Pay Yourself First” with the 50/30/20 rule, you create a comprehensive approach to managing your finances. The golden rule ensures that savings and investments are prioritized, while the 50/30/20 rule provides a framework for allocating your income across different expense categories.

The 5 components of financial literacy. There's plenty to learn about personal financial topics, but breaking them down can help simplify things. To start expanding your financial literacy, consider these five areas: budgeting, building and improving credit, saving, borrowing and repaying debt, and investing.

Importantly, financial literacy matters: it helps people make savvy financial decisions, including being less influenced by framing, better understand information that is provided to them, better understand the workings of insurance, and being more comfortable using basic financial instruments.

Many studies have demonstrated that persons with higher financial literacy are more likely to participate in desirable financial behaviors, such as deposits, mutual funds, and stocks, than those with lower financial literacy (Yang et al., 2022).

Financial literacy is essential for managing day-to-day expenses, budgeting effectively, and avoiding debt traps. Understanding concepts like interest rates, credit scores, and budgeting allows individuals to make sound financial decisions that align with their goals.

Research has found that financial literacy has a significant direct impact on financial well-being, and it affects financial well-being through financial behavior [84]. Similarly, financial self-efficacy and financial literacy positively influence financial well-being through financial behavior mediation [63].