Financial literacy in the South African urban small business sector: Nature, extent and utilisation in the Eastern Cape Province
(Pearson Institute of Higher Education)
Paper short abstract:
A multi-method study of financial literacy among urban-based SMME operators in South Africa reveals a paradoxical finding: widespread possession of financial literacy skills did not equate to widespread utilisation of those skills. This posed a threat to long-term business success.
Paper long abstract:
Regarded as a key skills need in the small, medium and microenterprise (SMME) sector, financial literacy has spawned serious debate among scholars and policy makers. In South Africa, assessments are mixed regarding the financial literacy levels of SMME operators. While some studies give a generally positive rating of the levels of financial knowledge in the sector, others suggest that the sector is bedeviled by a financial literacy deficits. The existing knowledge base about the sector is thus weak; yet the sector is believed by government and development agencies as key to employment creation and economic growth. Against this background, this paper presents data from a multi-method study of SMME operators in Port Elizabeth, East London and Mthatha - the Eastern Cape Province's major cities. The aim was to assess the nature of financial knowledge at their disposal, whether such knowledge was utilised by the operators, and if so, how widespread was the utilisation. Eighty randomly selected SMME operators were surveyed. In addition, 20 respondents were interviewed. The financial literacy variables used in the study were: savings, budgeting, use of credit, debt repayments, cash management, record keeping and profit determination. The study found that while most SMME operators possessed basic financial literacy, they lacked the ability to utilize it. Operators could discuss and demonstrate knowledge of the various financial literacy variables but did not utilize them in the day-to-day running of the enterprise - which potentially threatens the long-term success of the business with dire consequences for urban employment creation.
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