Petronella Jonck, Lilian Nwosu
Abstract
Financial literacy has been identified as a major contributing factor in entrepreneurial business performance. Therefore, the purpose of this study was to investigate the relationship between financial literacy and the performance of small and medium-sized enterprises (SMEs) in the South African informal sector. The research reported on is based on the supposition that a lack of financial literacy negatively impacts the financial wellbeing and overall performance of SMEs in the informal sector resulting in decreased productivity and/or business closure. The study adopted a quantitative approach and was operationalised by means of obtaining quantitative data from 1 658 (n = 1 658) respondents operating SMEs not registered for value-added tax. Purposive sampling was used to generate the final sample. By means of structural equation modelling, the research established that the application of financial literacy, for example completing annual accounts, statistically significantly influenced turnover and net profit. Given the pivotal role of the informal sector and the emaciated research evidence relating thereto, the significance of the study could be found in its contribution to the corpus of knowledge. Skills development for SME owners should be emphasised by policymakers and financial institutions. However, financial literacy knowledge in isolation did not yield statistically significant results.