The Influence of Financial Literacy on Small Business Budgeting and Investment Decision-Making Accuracy

Posted: Aug 14, 2021

• Elizabeth Hernandez
• Elizabeth King
• Elizabeth Young

Abstract

The landscape of small business operations presents unique challenges in financial management, where limited resources and market volatility create complex decision-making environments. Financial literacy, traditionally conceptualized as the understanding of financial concepts and products, assumes critical importance in this context. However, the precise mechanisms through which financial literacy influences budgeting accuracy and investment decision-making remain inadequately explored in contemporary literature. This research addresses this gap by examining the multidimensional nature of financial literacy and its practical manifestations in small business contexts. Small businesses constitute a substantial portion of economic activity worldwide, yet they face disproportionately high failure rates, often attributed to financial mismanagement. Previous research has established correlations between financial knowledge and business success, but has largely neglected the qualitative aspects of how financial literacy translates to daily decision-making processes. Our study introduces a novel framework that conceptualizes financial literacy in small business contexts.