A Critical Investigation of Financial Literacy and Its Performance on Small Scale Business in Nigeria
Abstract
This study investigated the relationship between financial literacy, IT performance, and overall business performance among small-scale enterprises in Nigeria. Adopting a quantitative survey research design, data was collected from a sample of 120 respondents using a structured questionnaire. The collected data was then presented and analyzed using SPSS27. Hypotheses were formulated and tested using the one-sample t-test method, with an assumed mean of 0 and a critical table value of 2.92 at a 5% level of significance. The findings revealed significant relationships between financial literacy and IT performance, as well as between financial literacy, IT performance, and overall business performance. Specifically, it was found that higher levels of financial literacy were associated with better IT performance and improved business outcomes. In conclusion, the study highlights the importance of financial literacy and IT performance for the success of small-scale enterprises in Nigeria. It underscores the need for targeted interventions aimed at enhancing financial literacy, improving access to IT resources, and fostering a supportive business environment. Based on the findings, several recommendations are proposed to address the identified gaps and enhance the financial literacy, IT performance, and overall business performance of small-scale enterprises. These recommendations include implementing tailored financial literacy programs, providing access to affordable IT resources, offering training in digital skills, facilitating access to finance, and promoting collaboration and knowledge sharing among small-scale entrepreneurs. By implementing these recommendations, policymakers, stakeholders, and business owners can work together to create a conducive environment for the growth and success of small-scale enterprises in Nigeria.
CHAPTER ONE
INTRODUCTION
Background to the Study
In recent years, the discourse on financial literacy and its impact on business performance has gained significant traction, particularly in the context of small-scale businesses (Hair et al., 2020). Small-scale enterprises represent a crucial component of Nigeria’s economy, contributing substantially to employment generation, poverty alleviation, and economic development (Nidar & Bestari, 2022). However, these enterprises often face numerous challenges, including limited access to financial resources, inadequate financial management practices, and a lack of financial literacy among entrepreneurs (Potrich et al., 2022).
Financial literacy refers to the knowledge and understanding of financial concepts, tools, and techniques necessary to make informed and effective financial decisions (Robb & Woodyard, 2021). In the Nigerian context, the level of financial literacy among small-scale business owners varies widely, with many entrepreneurs lacking basic financial skills and awareness (Hosseini et al., 2022). This deficiency can have profound implications for business performance, sustainability, and growth (Tuyisenge et al., 2023).
Understanding the relationship between financial literacy and IT performance is particularly pertinent in the contemporary business landscape (Sabri & MacDonald, 2020). Information technology (IT) has become increasingly integral to business operations, offering opportunities for efficiency, innovation, and competitive advantage (Worthington, 2021). However, the extent to which financial literacy influences the effective utilization of IT resources in small-scale businesses remains underexplored, especially within the Nigerian context (Tamimi & Kalli, 2019).
Financial literacy can empower entrepreneurs to make informed decisions regarding the adoption and utilization of IT solutions in their businesses (Moore, 2023). By understanding basic financial principles, entrepreneurs may be better equipped to assess the costs and benefits of investing in IT infrastructure, software, and training (Stevens, 2022). Moreover, financial literacy can enhance entrepreneurs’ ability to manage IT-related expenses, evaluate technology vendors, and negotiate favourable contracts (Musie, 2021). Consequently, improving financial literacy among small-scale business owners may lead to more effective utilization of IT resources and, ultimately, enhanced business performance (Sucuahi, 2023).
However, the relationship between financial literacy and IT performance is likely to be complex and multifaceted (Tang & Peter, 2021). While financial literacy may enable entrepreneurs to make more informed decisions regarding IT investments, other factors such as technological proficiency, organizational culture, and resource constraints may also play significant roles (Monticone, 2020). Additionally, the effectiveness of IT solutions in driving business performance may depend on various contextual factors, including industry dynamics, market conditions, and regulatory environment (Ibitomi & Adeleke, 2020). Therefore, further research is needed to elucidate the mechanisms through which financial literacy influences IT performance in small-scale businesses, particularly in the Nigerian context (Ibitomi, 2018).
Hence, financial literacy plays a crucial role in shaping the utilization and impact of IT resources in small-scale businesses. While the adoption of IT solutions offers significant potential benefits, entrepreneurs must possess the necessary financial knowledge and skills to make sound decisions regarding IT investments. Improving financial literacy among small-scale business owners, policymakers, educators, and industry stakeholders can foster a more conducive environment for the effective integration of IT into business operations, ultimately contributing to enhanced performance, competitiveness, and sustainable growth.
Statement of Problem
The discourse on financial literacy and its implications for small-scale business performance has garnered considerable attention in recent years (Hair et al., 2020). However, despite the growing body of research in this area, several gaps persist, particularly regarding the nexus between financial literacy, IT performance, and small-scale businesses in the Nigerian context.
Firstly, existing studies have primarily focused on either financial literacy or IT performance in isolation, overlooking the interplay between these two factors (Hosseini et al., 2022). While there is a wealth of research highlighting the importance of financial literacy for business success, limited attention has been paid to its influence on the effective utilization of IT resources, especially among small-scale enterprises (Sabri & MacDonald, 2020). Consequently, there is a need for research that examines how financial literacy shapes entrepreneurs’ decisions regarding IT investments, adoption, and usage.
Secondly, the majority of research on financial literacy and IT performance has been conducted in developed economies, with limited emphasis on emerging markets such as Nigeria (Worthington, 2021). Given the unique socio-economic context and business environment of Nigeria, extrapolating findings from studies conducted elsewhere may not accurately capture the challenges and opportunities faced by small-scale businesses in the country (Tuyisenge et al., 2023). Therefore, there is a need for context-specific research that explores the relationship between financial literacy, IT performance, and business outcomes in Nigeria.
Moreover, existing studies often employ quantitative methodologies, overlooking the nuanced and qualitative aspects of financial decision-making and IT utilization among small-scale entrepreneurs (Stevens, 2022). Qualitative research approaches, such as interviews and case studies, can provide deeper insights into the underlying mechanisms and contextual factors that influence the relationship between financial literacy and IT performance (Sucuahi, 2023). By adopting a mixed-methods approach, researchers can offer a more comprehensive understanding of the challenges and opportunities faced by small-scale businesses in Nigeria concerning financial literacy and IT utilization.
Objectives of the Study
This study aimed to achieve the following specific objectives:
- To assess the level of financial literacy among small-scale business owners in Nigeria.
- To examine the extent to which financial literacy influences IT performance in small-scale businesses.
- To evaluate the impact of financial literacy and IT performance on the overall business performance of small-scale enterprises in Nigeria.
Behaviour Questions
To guide the investigation, the study addressed the following behaviours:
- What is the level of financial literacy among small-scale business owners in Nigeria?
- How does financial literacy influence the utilization of IT resources in small-scale businesses?
- What is the relationship between financial literacy, IT performance, and business outcomes in small-scale enterprises in Nigeria?
Research Hypotheses
The study tested the following hypotheses:
- There is no significant relationship between financial literacy and IT performance in small-scale businesses in Nigeria.
- Financial literacy has no significant impact on the overall business performance of small-scale enterprises in Nigeria.
Significance of the Study
The significance of this study lies in its potential to contribute valuable insights into the relationship between financial literacy, IT performance, and small-scale business outcomes, particularly within the Nigerian context. By addressing the gaps identified in existing research, this study aims to offer a more comprehensive understanding of the challenges and opportunities faced by small-scale entrepreneurs in Nigeria.
Firstly, the study holds significance for policymakers and regulatory bodies tasked with fostering an enabling environment for small-scale businesses. By elucidating the impact of financial literacy on IT performance and business outcomes, policymakers can design targeted interventions and support mechanisms to enhance the financial capabilities of entrepreneurs and promote the effective utilization of IT resources. Such initiatives can play a crucial role in driving economic growth, job creation, and poverty alleviation in Nigeria.
Secondly, the study is of practical significance for small-scale business owners, providing them with valuable insights into the importance of financial literacy and IT utilization for business success. By understanding how financial literacy influences their decisions regarding IT investments, adoption, and usage, entrepreneurs can make more informed and strategic choices to enhance their competitiveness and sustainability in the marketplace. Moreover, the study may help entrepreneurs identify areas for improvement in their financial management practices and IT utilization, thereby empowering them to optimize their resources and drive business growth.
Furthermore, the study holds academic significance by contributing to the existing body of knowledge on financial literacy, IT performance, and small-scale business dynamics. By employing a rigorous research methodology and exploring the nuanced interactions between these variables, the study seeks to advance theoretical understanding and generate new insights that can inform future research in this field. Moreover, the study’s focus on the Nigerian context adds to the literature on entrepreneurship in emerging markets, offering valuable comparative perspectives and enriching scholarly discourse on global business practices.
Additionally, the study has implications for educators and training providers involved in entrepreneurship education and capacity-building initiatives. By highlighting the importance of financial literacy and IT skills for entrepreneurial success, the study can inform the design and delivery of training programs aimed at equipping aspiring and existing entrepreneurs with the knowledge and competencies needed to thrive in today’s competitive business environment.
Scope of the Study
The study focused on small-scale businesses operating in Nigeria, with an emphasis on enterprises across various sectors and industries. The geographical scope encompassed different regions of the country to ensure a comprehensive representation of the diverse business landscape. However, the study did not extend to large corporations or multinational companies.
Operational Definition of Terms
To ensure clarity and consistency, the following terms were operationally defined within the context of this study:
Financial Literacy: Refers to the knowledge, skills, and understanding of financial concepts and principles necessary for effective financial management and decision-making.
IT Performance: Denotes the efficiency, effectiveness, and utilization of information technology resources within small-scale businesses, including hardware, software, networks, and digital platforms.
Small-scale Business: Encompasses enterprises characterized by limited scale of operations, typically with fewer employees, lower turnover, and smaller market share compared to larger corporations.
Business Performance: Indicates the overall success, profitability, and sustainability of a business entity, including financial indicators such as revenue, profitability, and growth.
Entrepreneur: An individual who organizes and operates a business venture, assuming financial risks in the pursuit of profit and innovation.
Emerging Economy: Refers to a developing or transitional economy characterized by rapid industrialization, urbanization, and socio-economic changes.
Financial Management: Involves the planning, organizing, directing, and controlling of financial resources within an organization to achieve its objectives and maximize value.
Information Technology (IT): Encompasses the use of computer systems, software applications, and telecommunications technologies to process, store, retrieve, and transmit data and information.
References
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- Stevens, J. (2022). Applied multivariate statistics for the social sciences. Hillsdale, NJ: Lawrence Erlbaum Associates, publishers.
- Sucuahi, W. T. (2023). Determinants of financial literacy of micro-entrepreneurs in Davao City. International Journal of Accounting Research, 1(1), 44–51.
- Tagoe, N., Nyarko, E., & Anuwa-Amarh, E. (2021). Financial Challenges facing urban SMEs under financial sector liberation in Ghana. Journal of Small Business Management, 43(3), 331- 343.
- Tali, T.-H. (2016). Financial literacy among children: The role of involvement in saving money. Young Consumers, 17(2), 197–208.
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