A Critical Investigation Of Financial Literacy And Its Impact On Small Scale Businesses Performance In Port Harcourt, Rivers State

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A Critical Investigation Of Financial Literacy And Its Impact On Small Scale Businesses Performance In Port Harcourt, Rivers State


Abstract


This study was carried out to critically investigate of financial literacy and its impact on small scale businesses performance in Port Harcourt, Rivers State. The study was specifically set to ascertain whether the extent financial knowledge influences small scale business performance in Port Harcourt, Rivers State, determine the extent to which financial behaviour enhance small scale business in Port Harcourt, Rivers State, ascertain the extent financial skills promotes small scale business performance in Port Harcourt, Rivers State, and ascertain problems hindering utilization of financial literacy in management of small scale business among operators in Port Harcourt, Rivers State. The survey design was adopted and the simple random sampling techniques were employed in this study. The population size comprise of selected small scale businesses owners in Port Harcourt, Rivers State. In determining the sample size, the researcher conveniently selected 119 respondents while 110 were received and 100 were validated. Self-constructed and validated questionnaire was used for data collection. The collected and validated questionnaires were analyzed using frequency tables and percentage, while the hypotheses was tested using Chi-square statistical tool. The result of the findings reveals that the extent financial knowledge influences small scale business performance in Port Harcourt, Rivers State is high. Furthermore, the study showed that the problems hindering utilization of financial literacy in management of small scale business among operators in Port Harcourt, Rivers State includes: educational background, limited access to financial education, complexity of financial information, time constraints, risk aversion, and lack of trust in financial institutions. The study recommends that government agencies along with micro finance institutions and banks should organize financial education programs that will create awareness on areas that are lacking such as more effective sources of funds for startup businesses. This will encourage SMEs to expand and grow in areas they are lacking. Financial education programs will not only improve the growth of the enterprises but also the entire economy as MSE’s contributes so much to the economies where they exist. To mention but a few.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • REFERENCES
  • APPENDIX
  • QUESTIONNAIRE

Chapter One


Introduction

1.1 Background to the Study

Developed and developing economies continue to rely on small businesses to play akey role in triggering and sustaining economic growth and equitable development. Small and Medium Scale Enterprises (SMEs) are facilitators for broad-based growth in competition, entrepreneurship and offer economy-wide benefits such as innovation and aggregate productivity growth (Tarfasa, Ferede, Kebede andBehailu, 2016). Small and Medium Scale Enterprises (SMEs) contribute largely to output, employment in both developed and developing countries and contribute greatly to the revitalization of the global economy and of individual national economies (Paul, 2009).
The need for financial literacy by SMEs has been emphasized by different scholars. Financial literacy is the mastery of a set of knowledge, attitudes and behaviors. It is defined by Nkundabanyanga and Kasozi (2014), as the ability of an individual to make informed judgment and take effective decisions regarding the use and management of money. They added that such person also possesses a facilitating attitude to the effective and responsible management of financial affairs. That is the ability to read, analyses, manage and communicate personal financial conditions that affect well-being and the ability to distinguish financial choices, discuss money and financial issues without discomfort. It has assumed the role in allowing people to make responsible decisions as they strive to attain financial wellbeing (Ani, Kelmara and Wesley, 2016).

Financial literacy has become essential in the running of businesses and operations of organizations in the complex and dynamic environment today. Atkinson and Messy (2012), added that governments around the world are interested in finding effective approaches of improving financial literacy of their populations through developing strategies for financial education with the main aim of providing various learning opportunities. Many countries have developed strategies for the implementation of financial education to improve financial literacy of their population as it is perceived as a life skill necessary for intelligent financial conduct in modern life and an important basis for the economic and financial stability of society and the state (Tali, 2016).

Studies have been conducted on the importance of financial literacy on performance in terms of profitability and growth of SMEs and have shown that lack of financial literacy level among people around the world has cause business failures(Niwaha, Schmidt and Tumuramye, 2016).Many studies conducted on financial literacy focused on personal finance and fail to relate it to business management. They tend to look at factors like book keeping literacy, banking services literacy and ratio analysis on personal and household finance. These studies however focused on the numeracy skills of individuals and how these skills affected their financial decisions; no attempt was made to establish how the level of literacy of these individuals affected the performance of their businesses. Unlike the previous studies, this study focused on various components of financial knowledge, financial behavior and financial attitude and how they affect the performance of SMEs in Benue State, Nigeria. The general objective of the study was to carry out a critical investigation of financial literacy and its impact on small scale businesses performance in Port Harcourt, Rivers State.


1.2 Statement of the Problem

Remote areas and villages have started their own companies. Animal husbandry, greenhouse farming, dairy framing, fishing, and other local farming operations are examples of family enterprises. These firms are run in a very domestic and local way, with the owners not considering how to increase their investment. These businesses are not long-term and are subject to changes in the environment and politics. Despite the efforts of national and international organizations and government agencies to assist small businesses, small and medium-sized companies (SMEs) can not exist without their own efficient and effective business and financial management. Most businesses fail early on or never expand, owing to the fact that maintaining a firm necessitates financial management expertise.

Despite their importance, SMEs have a variety of problems, one of which is a lack of financial information and company records. Lack of sufficient business skills, according to Wanjohi (2011), is a key problem in the creation and expansion of SMEs. This is mostly due to a lack of appropriate information and company records, as well as low levels of knowledge. The CMA (2010) also found that SMEs have restrictions that reduce their risk resilience and prohibit them from expanding and achieving economies of scale. Internal and external factors both limit access to financial data. As a result, they struggle to meet their goals in terms of liquidity, long-term solvency, and profitability, resulting in missed business opportunities and a failure to expand in terms of size and financial resources (Badagawa, 2008). A study of the financial literacy of SMEs in emerging and wealthy nations reveals a mixed picture. In a study of national surveys performed in numerous African nations, Liedholm and Mead (2005) estimate that between 17 and 27 percent of the working population engaged in SMEs is financially literate, which is roughly double the employment of large businesses and the public sector. According to a review of the literature in this field, there is a considerable gap in understanding of the implications of financial literacy on SME’s performance. As a result, this research was conducted.


1.3 Objective of the Study

The central objective of the study is to examine financial literacy and its impact on small scale businesses performance in Port Harcourt, Rivers State. The specific objectives are:

  1. Ascertain whether the extent financial knowledge influences small scale business performance in Port Harcourt, Rivers State.
  2. To determine the extent to which financial behaviour enhance small scale business in Port Harcourt, Rivers State.
  3. To ascertain the extent financial skills promotes small scale business performance in Port Harcourt, Rivers State.
  4. To ascertain problems hindering utilization of financial literacy in management of small scale business among operators in Port Harcourt, Rivers State.

1.4 Research Questions

  1. What is the extent financial knowledge influences small scale business performance in Port Harcourt, Rivers State?
  2. What is the extent to which financial behaviour enhances small scale business performance in Port Harcourt, Rivers State?
  3. What is the extent financial skills promotes small scale business performance in Port Harcourt, Rivers State?
  4. What are the problems hindering utilization of financial literacy in management of small scale business among operators in Port Harcourt, Rivers State?

1.5 Research Hypothesis

  • Ho: Financial literacy has no significant impact on the performance of small scale businesses in Port Harcourt, Rivers State.
  • Ha: Financial literacy has a significant impact on the performance of small scale businesses in Port Harcourt, Rivers State.

1.6 Significance of the Study

The study’s goal is to discover and investigate the link between financial literacy and company performance and profitability in small and medium businesses (SMEs). This research will aid the government and the international community in better understanding the variables that influence the development and viability of the private sector in Nigeria. The findings of the study will also assist the private sector in determining which elements are crucial to their company’s profitability. This study will contribute to the existing body of knowledge on the issue and will serve as a resource for academics, researchers, and students interested in undertaking future research on this or a related topic.


1.7 Scope of the Study

The study is generally narrowed to a critically investigate on financial literacy and its impact on small scale businesses performance in Port Harcourt, Rivers State. Hence, enrolled participants for this study will be obtained from selected SMEs in Mile2, Port-Harcourt Rivers State.


1.8 Limitation of the Study

As every human endeavor is once faced with a constraint, the same was tenable during the period of this study. In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed.  More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to small scale industries in other countries in the world.


1.9 Definitions of Terms

Small Scale Business:

A small scale business is a business that have not less than ten (10) employees but not more than forty nine (49)

Financial literacy:

Is a combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing. That is, it is the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.


1.10 Organization of the Study

The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study, sample size determination, sample size, abnd selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter(chapter five) contains the summary, conclusion and recommendation.


Chapter Five


Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on a critical investigation of financial literacy and its impact on small scale businesses performance in Port Harcourt, Rivers State. The chapter consists of summary of the study, conclusions, and recommendations.


5.2 Summary of the Study

In this study, our focus was on a critical investigation of financial literacy and its impact on small scale businesses performance in Port Harcourt, Rivers State. The study was specifically set to ascertain whether the extent financial knowledge influences small scale business performance in Port Harcourt, Rivers State, determine the extent to which financial behaviour enhance small scale business in Port Harcourt, Rivers State, ascertain the extent financial skills promotes small scale business performance in Port Harcourt, Rivers State, and ascertain problems hindering utilization of financial literacy in management of small scale business among operators in Port Harcourt, Rivers State.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 100 responses were validated from the enrolled participants where all respondent are selected small scale businesses owners in Port Harcourt, Rivers State.


5.3 Conclusions

In the light of the analysis carried out, the following conclusions were drawn.

  1. The extent financial knowledge influences small scale business performance in Port Harcourt, Rivers State is high.
  2. The extent to which financial behaviour enhances small scale business performance in Port Harcourt, Rivers State is high.
  3. The extent financial skills promotes small scale business performance in Port Harcourt, Rivers State is high.
  4. The problems hindering utilization of financial literacy in management of small scale business among operators in Port Harcourt, Rivers State includes: educational background, limited access to financial education, complexity of financial information, time constraints, risk aversion, and lack of trust in financial institutions.

5.4 Recommendation

Based on the findings the researcher recommends that;

  1. Government agencies along with micro finance institutions and banks should organize financial education programs that will create awareness on areas that are lacking such as more effective sources of funds for startup businesses. This will encourage SMEs to expand and grow in areas they are lacking. Financial education programs will not only improve the growth of the enterprises but also the entire economy as MSE’s contributes so much to the economies where they exist.
  2. As reflected from the study, it is evident that financial behavior is an important contributor to the performance of SMEs. This therefore, reflects the need for training programs on budgeting and planning, debt management, record keeping, saving and retirement plans in schools and other institutions that seek to promote financial literacy and practice.
  3. From the results, it is evident that the financial attitude of SMEs owners and managers is significant in their performance. Therefore, it is important for the government and relevant agencies to put efforts in influencing the attitudes of SMEs managers and owners positively. Positive attitudes lead to positive behaviors and hence benefit both the SMEs and their stakeholders.

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