DETERMINANTS OF THE FINANCIAL LITERACY LEVEL OF MICRO AND SMALL ENTERPRISE OWNERS’ IN NORTH SHOA ZONE

Abstract

Financial literacy is a lifelong journey of learning which is all about the ability to understand and effectively use various financial knowledge and skills that include personal financial management, budgeting and investing. This study, therefore, aims at evaluating the financial literacy level of owners of MSEs in North Shoa zone and identifying the demographic and socio-economic factors that influence their financial literacy level. Primary data were collected from a sample of 378 MSE owners residing in in North Shoa zone using self administered questionnaire. The Financial literacy level measure incorporates three dimensions: financial knowledge, financial behavior and financial attitude. A two-way cluster analysis is made to classify the sample MSE owners’ as higher and lower financial literacy level groups. Findings imply that majority of owners of MSEs (80.2%) appears to be with lower financial literacy level. In addition, some demographic and socio-economic factors influence the financial literacy levels of owners’ of micro and small enterprise. To this end, MSE owner’s level of education, pattern of consumption and government support have significant effect on the financial literacy level at 5% level of significance. Based on the findings, the study suggest that enterprise development offices need to design strategy that gives finance related trainings, to prepare and distribute an easy basic financial knowledge and skill in terms of brief working manual for enterprise owners. In addition, the MSE enterprise owners need to upgrade their financial knowledge by accessing financial information using different platforms like internet, discussion and Medias and so on. Finally, NBE and other concerned bodies including researchers are suggested to investigate the issue and find out mechanisms that uplift the financial literacy level of MSE owners.