Accounting Project Topics

A Critical Investigation of Financial Literacy and Its Impact on Small-Scale Business Performance in Port Harcourt

A Critical Investigation of Financial Literacy and Its Impact on Small-Scale Business Performance in Port Harcourt

A Critical Investigation of Financial Literacy and Its Impact on Small-Scale Business Performance in Port Harcourt

Chapter One


The overall goal of the research is to critically investigate the financial literacy and its impact on small scale businesses performance. Specifically, the study is set to;

  1. Investigate the role of financial literacy on the development of SMEs.
  2. Investigate if financial literacy positively contribute to the performance of SMES
  3. To investigate factors influencing the use of financial literacy by SMEs.



Theoretical Framework

This study is anchored on the dual-process theory which is considered most relevant to the work. 

Dual –Process Theory

The dual-process theory was propounded by Lusardi and Mitchell (2011). This theory posits that financial decisions can be driven by both intuitive and cognitive processes which mean that financial literacy may not always yield optimal financial decisions. The Dual Process Financial literacy theory argues that the behavior of people with a high level of financial literacy might depend on the prevalence of the two thinking styles: intuition (system 1) and cognition (system 2)(Lusardi and Mitchell, 2011; Glaser and Walther, 2013). Intuition is the ability to acquire knowledge without inference or the use of reason. Intuition provides views, understandings, judgments, or beliefs that cannot be empirically verified or rationally justified. Taylor (1981) as cited by Chan and Park (2013) asserts that individuals who rely on intuition prefer to use mental short cuts as they make decisions which tend to be largely influenced by their emotions. Glaser and Walther (2013) point out that the positive effect of financial literacy on reasonable investment decisions is diminished by a high prevalence of intuition. Therefore, increased use of intuition results to sub optimal investment decisions. Cognition on the other hand is the process by which the sensory input is transformed, reduced, elaborated, stored, recovered and used. Cognition is the mental processing that includes the comprehending, calculating, reasoning, problem solving and decision making (Chan and Park 2013). High cognition individuals enjoy thinking, are analytical and are better at retaining information and more likely to search out new information

Relevance of the theory to the work

The dual process theory is considered relevant to this study because it shows that individuals who are high on cognition will seek out for information and are more likely to be influenced by a relevant message. This means that their decision making skills can be boosted by financial literacy training using simple easy to understand methodologies. Moreover, use of intuition may be reduced by provision of relevant information to support decision-making through financial education since individuals tend to rely on intuition where relevant information is lacking. However optimal results may not be achieved where individuals trust their intuitions in decision making.

Concept of financial literacy

Financial literacy is the education and understanding of various financial areas. This conceptfocuses on the ability to manage personal finance matters in an efficient manner, and itincludes the knowledge of making appropriate decisions about personal finance such as investing, insurance, real estate, paying for college, budgeting, retirement and tax planning (Fatoki, 2014). Financial literacy also involves the proficiency of financial principles and concepts such as financial planning, compound interest, managing debt, profitable savings techniques and the time value of money. The lack of financial literacy or financial illiteracy may lead to making poor financial choices that can have negative consequences on the financial wellbeing of an individual. Consequently, the federal government created the Financial Literacy and Education Commission, which provides resources for people who want to learn more about financial literacy (Ageyi, 2014).

Dimensions of financial literacy

Financial Knowledge

Financial knowledge is defined as the understanding of key financial terms and concepts needed to function daily (Huston, 2017). It is defined by (Potrich, Kelmara and Wesley, 2016) as a particular kind of capital acquired in life through the ability to manage income, expenditure and savings in a safe way. Financial knowledge is wisdom acquired through learning the ability to manage income, expenditure and savings in a safe way (Lusardi and Mitchell, 2008). Financial knowledge is associated with a number of “best practice” financial behaviors, including possessing an adequate emergency fund, monitoring credit reports, avoiding checking account overdrafts, avoiding revolving debt, owning a dedicated retirement account, and having insurance protection (Robb, 2014). The Organization of Economic Co-operation and Development (OECD), added that financial knowledge is an important determinant of whether the individual is financially literate, involving questions related to concepts such as simple and compound interest, risk and return and inflation (OECD INFE, 2011).

Financial Behaviour

Financial behavior as defined by Zeynep(2015)is the capability to capture of understanding overall impacts of financial decisions on one’s circumstances and to make the right decisions related to the cash management, precautions and opportunities for budget planning. Research has shown that financial literacy consistently predicts measures of financial behavior of individuals (Hung, Parker andYoong, 2009). Sucuahi (2013) highlighted that a good financial behavior involves the ability to make financial decisions that increase wealth and prevent uncertainties of businesses and individuals. These activities generate more financial assets, prevent over indebtedness, finance retirement, and insure against major life contingencies.





In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.


According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.

This study was carried to examine a critical investigation of financial literacy and its impact on small scale businesses performance in portharcourt, rivers state. Selected SMEs in Portharcourt, Rivers state form the population of the study.




This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.




It is important to ascertain that the objective of this study was to ascertain a critical investigation of financial literacy and its impact on small scale businesses performance in portharcourt, rivers state. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the a critical investigation of financial literacy and its impact on small scale businesses performance in portharcourt, rivers state.


This study was on a critical investigation of financial literacy and its impact on small scale businesses performance in portharcourt, rivers state. Three objectives were raised which included:  rmance. Specifically, the study is set to; Investigate the role of financial literacy on the development of SMEs, investigate if financial literacy positively contribute to the performance of SMES and to investigate factors influencing the use of financial literacy by SMEs. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected SME in Portharcourt, River state Hypothesis was tested using Chi-Square statistical tool (SPSS).


The study concludes that most SMEs owners are knowledgeable about the basic financial concepts because a greater percentage of the respondents answered the financial knowledge questions correctly. However, the question of sources of finance was not a strong area for the respondents. That is, most of them would rather use own funds to finance their businesses than seek loans from formal finance providers for their assorted reasons. The study also concludes that financial behavior is a significant predictor of performance for micro and small enterprises. Most SMEs owners however apply little or no budgeting and planning, debt management,saving, record keeping and retirement planning in their business activities. Finally, the study notes that financial attitudes influences SMEs performance. However, most MSE managers and owners have poor attitudes towards their financial activities. This was evident by the low future orientations, inability to takes risks and lack of participation in training programs that can promote their financial skills despite the knowledge on the importance of directing short-term activities towards long-term goals of the firm.


In view of the conclusions above, the following recommendations were made:

  1. Government agencies along with micro finance institutions and banks should organize financial education programs that will create awareness on areas that are lacking such as more effective sources of funds for startup businesses. This will encourage SMEs to expand and grow in areas they are lacking. Financial education programs will not only improve the growth of the enterprises but also the entire economy as MSE’s contributes so much to the economies where they exist.
  2. As reflected from the study, it is evident that financial behavior is an important contributor to the performance of SMEs. This therefore, reflects the need for training programs on budgeting and planning, debt management, record keeping, saving and retirement plans in schools and other institutions that seek to promote financial literacy and practice.
  3. From the results, it is evident that the financial attitude of SMEs owners and managers is significant in their performance. Therefore, it is important for the government and relevant agencies to put efforts in influencing the attitudes of SMEs managers and owners positively. Positive attitudes lead to positive behaviors and hence benefit both the SMEs and their stakeholders.


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