Abstract
Small entrepreneur performance is always seen along with the complete proportions of financial, strategic, and structural development. The socioeconomic function performed by them is widely known. But, in recent times, developing and developed nations have become more and more concerned about the level of financial literacy of the entrepreneur. This has emanated from peculiar to declining public and private support systems and wide-ranging developments in the financial marketplace. The concern is also intensified by the challenges faced by small entrepreneurs in the financial context aided by the recognition that the dearth of financial literacy has been one of the many elements responsible for not only lack of proper knowledge or poor financial decision-making but also poor financial or non-inclusion. Adopting a systematic literature review and based on thematic analysis this chapter aims to understand the role of financial literacy in entrepreneurship education as a strategy for inclusion of small entrepreneurs.
TopIntroduction
Financial literacy, in the brightness of the new business reality, is the capability to adequately oversee financial resources over the life cycle and connect with effectively with financial products and services. Financial literacy is about discernment and makes effective decisions on utilization of financial management (Gavigan, 2010). This is an area that requires knowledge, skill, attitude and experience with goals to deal with the survival of the firm; profit maximization; sales maximization; capturing a particular market share; minimizing staff turnovers and internal conflicts; and maximizing wealth (Jacobs, 2001). It can be among the essential strategic tools to more organize allotments of financial resources and to a considerable financial strength. In a business, decision-making needs to be rational and be premised on available information. This implies that it is imperative that manager of business and individual should have a reasonable degree of knowledge related to the available information to make good decisions. Remund (2010) opined that financial literacy is the degree to which one understands important financial concepts and possesses the capacity and confidence to handle personal funds of appropriate, brief period decision-making and solid long-term financial forethought.
A significant obstacle to performance growth of sustainable small and medium scale enterprises (Small entrepreneurs) throughout the developing world is a lack of knowledge, skills, attitude and awareness to cope and direct the finances of their organization in a hardy, transparent, and professional way. Joo and Grable (2000) stated that the reasons why business people make inappropriate, inadequate and ineffective financial decisions are because of the lack of personal financial knowledge, lack of time to learn about personal financial management, complexities in financial transactions and the extensive variety of choices in financial products/services. Lack of business management skills can magnify financial barriers for small entrepreneurs. Low degree of financial literacy can prevent the performance level of small entrepreneurs from adequately assessing and understanding different financing provision, and for navigating complex loan application procedures. Having realized this most of the countries have mandates of promoting financial knowledge and skills in assisting small entrepreneurs’ firm managers and owners in making the right financial decision. In India, the government established financial stability and development council (FSDC) with responsibilities of educating and counseling entrepreneurial and individual on different sources of financing initiatives. Likewise, Ghana government in 2009 approved a national strategy in collaboration with international agencies on financial literacy and consumer education in assisting small entrepreneurs firm’s owners and managers; while, Malaysia government adopted a three pronged approach by establishing financial working committee to oversee the financial literacy program for small entrepreneurs firms’ owners (CBN, 2012).
Accordingly lack of financial literacy and access to financial services makes majority to lag behind. This has been a concern and intense challenge faced by the small entrepreneurs with the recognition that lack of financial literacy is one of the factors contributing to ill-informed financial decisions and that these decisions could, in turn, had a tremendous negative spill-over (OECD, 2005). Hence, this research is based on a scientific literature review on financial literacy, strategic perspective of the firm’s performance and how financial literacy in entrepreneurial education can be used as a strategy for financial inclusion when it comes to small entrepreneurs.
Key Terms in this Chapter
Peer-to-Peer Lending: The practice of lending money to individuals or businesses through online services which match lenders with borrowers.
Competence: Refers to the capacity of individuals/employees to act in a wide variety of situations. It consists of education, skills, experience, energy and their attitudes that will make or mar relationships with the customers and the products or services they provide.
Decision-Making: A rational and logical process of choosing the best alternative or course of action among the available options.
Development: Means ‘steady progress’ and stresses effective assisting in hastening a process or bringing about a desired end, a significant consequence or event, the act or process of growing, progressing, or developing.
Challenges: Something that by its nature or character serves as a call to make special effort, a demand to explain, justify, or difficulty in a undertaking that is stimulating to one engaged in it.
Financial Inclusion: A condition where individuals and business have access to useful and affordable financial products and services that meet their needs.
Government: The organization, machinery, or agency through which a political unit exercises authority and performs functions and which is usually classified according to the distribution of power within it.
Firm: A group of persons organized for some end or work; an organized structure or whole for a business or administrative concern united and constructed for a particular end.
Unbanked: Individuals who do not use banks or banking institutions in any capacity.