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Assessing the Effect of Financial Literacy Among Managers on the

Performance of Small-Scale Enterprises

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DOI: 10.1177/0972150919899753

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Original Article

Assessing the Effect of Financial Global Business Review

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Literacy Among Managers on © 2020 IMI
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DOI: 10.1177/0972150919899753
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Joseph Kwadwo Tuffour1

Awurabena Asantewa Amoako2
Ernestina Otuko Amartey2

Abstract
The small-scale sub-sector continues to be a fundamental catalyst for job creation and economic growth
in Ghana. About 35 per cent of labour is provided by the sub-sector and shows the importance of
harnessing its potentials in developing the Ghanaian economy. It has been established that financial
literacy has a significant influence on whether or not small-scale enterprises succeed. Yet, the exact
effect of financial literacy on small-scale enterprise performance has not been fully identified in Ghana,
hence the need for the present study. This study examines the effect of financial literacy (awareness,
attitude and knowledge) of managers on the performance (financial and non-financial) of small-scale
enterprises in the La Nkwantanang Madina Municipality of Ghana. Primary data were obtained from
200 small-scale managers through structured questionnaires. The data were analysed using structural
equation model. The results revealed a significant effect of financial literacy on firm performance (both
financial and non-financial performance). Also, all the three components of financial literacy (awareness,
attitude and knowledge) have a significant positive effect on both financial and non-financial performance.
However, individual characteristics (age of the individual, educational level and experience) have no
significant effect on financial performance, whereas tax becomes useful when used as a regulatory tool
of small enterprises. Capacity building programmes are therefore recommended to increase financial
literacy among managers/owners of small-scale enterprises.

Keywords
Financial literacy, managers, small-scale enterprises, small-scale enterprises performance

1
Research and Consultancy Centre, University of Professional Studies, Accra, Ghana.
2
Department of Banking and Finance, University of Professional Studies, Accra, Ghana.

Corresponding author:
Joseph Kwadwo Tuffour, Research and Consultancy Centre, University of Professional Studies, Accra, P. O. Box LG 149, Legon-
Accra, Ghana.
E-mail: joseph.tuffour@upsamail.edu.gh
2 Global Business Review

Introduction
Small and medium enterprises (SMEs) play a vital role in various economies globally. Across the world,
SMEs are regarded as the engine of growth, job creation and human development, especially in the
developing countries (Appiah, Possumah, Ahmar, & Sanusi, 2018; Ombongi & Long, 2018). In Africa,
SMEs account for more than 90 per cent of the businesses and contribute about 50 per cent of GDP
(Fjose, Grünfeld, & Green, 2010; Kamunge, Njeru, & Tirimba, 2014). In Sub-Saharan Africa region,
SMEs account for more than 95 per cent of all firms (Fjose et al., 2010; Kauffman, 2006).
In Ghana, SMEs’ contribution is more pronounced, accounting for 92 per cent of all formal businesses
and contributes about 70 per cent to GDP, offering over 80 per cent employment to Ghanaians (Abor &
Quartey, 2010; Quartey, Turkson, Abor, & Iddrisu, 2017). Agyapong (2010) argues that SMEs play a key
role in poverty alleviation in Ghana. Small enterprises help to create jobs which increase the income of
the people, especially those in the towns and villages. The financial prospect provides the people an
opportunity to seek better education, healthcare and are empowered to opt out of poverty. In addition, the
growth of the enterprises contributes to human capital development through job training. According to
Amoah and Amoah (2018), the employment offered by the sector improves welfare, standard of living,
income levels and social stability of people. The sector also helps utilize resources, such as undesirable
raw materials that might not yield any substantial foreign earnings to the country. Again, the sector
produces intermediate products for use in the large-scale industries and contributes to the strengthening
of industrial interlinkages and integration (Ahiawodzi & Adade, 2012). The vibrant, efficient and
effective SMEs sector generates many benefits for stakeholders, employees, customers and employers
(Ahiawodzi & Adade, 2012; Tuffour, Akuffo, Kofi, Frimpong, & Sasu, 2018).
In addition, small-scale enterprises tend to be the primary driver for job creation. They are labour intensive
and therefore employ more labour per unit capita as compared to larger enterprises (Ghana Statistical Service
[GSS], 2017). This ends up creating more jobs in the economy. Despite these contributions, a number of
challenges confront the SME sector including financial literacy and management, credit constraints and
human resource management (Appiah et al., 2018; Ayyagari, Beck, & Demirguc-Kunt, 2007).
The interest in financial literacy has gained more attention in both developing and developed
economies. This is due to its roles in financial decision making. The need for financial literacy has been
emphasized by different scholars. For instance, a study in Ghana in 2009 revealed a financial literacy
level of 38 per cent in the North, 44 per cent in the middle belt and 51 per cent in the South (Amponsah,
2009). While some decisions can be made based on experience, age and other factors, other decisions are
complex, requiring financial literacy: knowledge, awareness, skills and attitude towards proper financial
management to achieve performance outcomes.
Financial literacy is defined as the ability of an individual to make informed judgements and take
effective decisions regarding the use and management of financial resources (Nkundabanyanga &
Kasozi, 2014). As noticed, knowledge about finance is very essential, not only for individuals but also
for enterprises as well. Hence, financial literacy has been identified as a basic tool for growth, development
of organizations and individual’s financial stability (Dahmen & Rodriguez, 2014; Dawuda, 2015).
Generally, managers are seen as the brain of every business’ success. Therefore, they are expected to
have requisite knowledge in order to resolve a variety of issues in the business. Managers ought to have
confidence in their financial decisions for growth and development. Owner managers who do not have
the requisite financial knowledge about their firms’ finances will lack the needed skills to direct the
financial affairs of the firms. Hence, any managerial decision made in the business may affect the
performance of the business. Studies that have been conducted on the importance of financial literacy on
performance in terms of profitability and growth of SMEs concluded that a low level of financial literacy
among people around the world has led to business failure (Bunyaminu, Tuffour, & Barnor, 2019;
Tuffour et al. 3

Tuffour & Martey, 2019). Financial literacy enables one to make a decision with a form of assurance and
certainty. It also aids individuals to respond competently to changes that affect their everyday financial
well-being and analyse general financial conditions such as inflation, collapse of financial markets,
interest rates of the economy, etc. which may affect their business.
However, findings indicate that there is still doubt about the extent to which financial literacy can
provide long-term improvement in business due to the perceived reliance on experience in validating
managers of SMEs. Thus, the premise of financial literacy being the major contributor to business
performance has been doubted. It is in this reference that research must substantiate or prove the
importance of financial literacy among managers on the performance of small-scale enterprises in Ghana.
Despite the importance of small business in many economies, the major studies done so far have mainly
focused on personal finance issues, leaving a gap on the analysis of the effect of financial literacy among
managers on the performance of small-scale enterprises (Brown, Saunders, & Beresford, 2006).
Atkinson and Messy (2012) indicated that governments around the world are more interested in
finding effective approaches to improve financial literacy among their nationals. This is done through
developing strategies for financial education with the main aim of providing various learning
opportunities. Through this, their nationals are able to overcome financial barriers in their businesses.
Saddik (2019) revealed that financial permeation has significant positive impacts on economic growth.
Various studies have been conducted on aspects of small enterprises to the exclusion of financial
literacy, including challenges, which are experienced across the entire value chain of the operational
areas (Appiah et al., 2018; Ayyagari et al., 2007; Quartey et al., 2017); competition (Appiah et al., 2018;
Bouazza, Ardjouman, & Abada, 2015); entrepreneurial capabilities (Bouazza et al., 2015; Kazimoto,
2014); innovation (Tuffour, Agbaam, Edzeame, Aye-Darko, & Darko, 2018), managerial leadership
(Tuffour, Abubakari, & Tuffour, 2019; Tuffour, Banor, & Akuffo, 2015), human resource capabilities
(Adomako, Danso, & Damoah, 2016; Pant, Lapres, Olafsen, Ronchi, & Cook, 2018); technological
capabilities (Anderson, 2017; Cirera & Maloney, 2017), business success of micro-entrepreneurs
(Chatterjee & Das, 2016), technical efficiency (Charoenrat & Harvie, 2017), dimensions of human
capital in SMEs (education, knowledge, experience and skills) (Dar & Mishra, 2019) and managerial
capabilities (Quartey et al., 2017). This gap in the literature on Ghana needs to be filled, and the present
study addresses the problem. The rest of the article is structured as follows: the second section contains
literature review while the third section has the methodology. The results and discussion are in the fourth
section, while the conclusion as well as managerial policy implications are in the fifth section.

Research Objectives
The main objective of the study is to assess the effect of financial literacy among managers on the
performance (financial and non-financial) of small-scale enterprises in the La Nkwantanang Madina
Municipal Assembly of Ghana. Specifically, the objectives of the study are to: (a) examine the extent to
which each of financial knowledge, attitude and awareness affects financial literacy and (b) examine
how financial literacy affects financial and non-financial performance of small-scale enterprises.

Rationale of the Study

In respect of the studies on the constraints facing SMEs, previous studies have looked at certain specific
aspects on SME to the neglect of the effect of financial literacy on performance. Moore (2003) focused
on effect of financial literacy on investment decisions, Dahmen and Rodriguez (2014) looked at financial
4 Global Business Review

understanding and their usage habits of financial statements in making management decisions and
Dawuda (2015) focused on the financial records keeping behaviour. All these studies have left a gap of
the extent to which financial literacy affects the performance of small-scale enterprises, which has
critical role in determining their sustainability. This gap in literature requires investigation relative to the
small enterprise sector. Previous related studies in Ghana have done little on small enterprise managers.
Related studies in Ghana considered cocoa farmers (Akoto, 2017), youth (Garg & Singh, 2018), teachers
(Owusu, 2015) and university freshmen business students (Ansong, 2011). Thus, the present study is
motivated by the gap of financial literacy and small enterprise performance relationship.

Literature Review

Theoretical Literature Review

The financial literacy theory argues that the behaviour of people with a high level of financial literacy
might depend on two thinking styles, namely, intuition and cognition which facilitate their decision-
making processes such as payment of bills on time, proper debt management to support economic growth
and sound financial system (Idowu, 2010). Atkinson and Messy (2012) also contributed to this theory by
describing the concept of financial literacy as the combination of individuals’ understanding of financial
products and services, and their ability to take financial opportunities and risk, which help them to make
informed choices for a strong financial stability. Jappelli and Padula (2013) predict that financial literacy
and wealth will be strongly correlated. Others have analysed the link between financial knowledge,
saving and investment behaviour (Hsu, 2011; Lusardi & Mitchell, 2014).
Bandura (1977) posits that social learning theory illustrates how social factors, such as source of
information and financial advice, shape a person’s behaviour. Social interactions may affect financial
decisions as people receive and process information through interacting with others. The author stated
that learning would be exceedingly laborious, not to mention hazardous, if people rely solely on the
effects of their actions to inform them on what to do. Fortunately, most human behaviour is learned
through observation which later becomes coded information and as a guide for action. The component
processes underlying observational learning are attention, retention and many more.
Social learning theory has been applied extensively to the understanding of aggression and
psychological disorders, particularly in the context of behaviour modification. According to this theory,
managers are likely to make financial decisions based on information available to them. The effects of
social interactions on individual behaviour have been modelled, tested and applied to a wide variety of
situations.

Empirical Literature Review

Many researches have come out with empirical studies on factors influencing the performance of firms.
For instance, Moore (2003) carried out a study on the effect of financial literacy on investment decisions,
using a sample of 20 companies surveyed in Washington, DC. Regression results of the analysis showed
that there was a positive correlation between the level of financial literacy and investment decisions of
firms. It was concluded that financial literacy had a significant effect on the financial performance of firms
since firms that had access to financial information invested in more profitable ventures (Moore, 2003).
Tuffour et al. 5

Dahmen and Rodriguez (2014) surveyed 14 small business owners in Florida in order to determine
their level of financial understanding and their usage habits of financial statements in making management
decisions. The questions used in the survey focused mainly on two pillars: financial knowledge and
financial behaviour excluding financial attitudes. The authors mainly concluded that there is a clear
connection between poor financial literacy and financial difficulties experienced by entrepreneurs, and
adequate financial education can partially decrease financial difficulties (Dahmen & Rodriguez, 2014).
Chatterjee and Das (2016) revealed a negative effect of technical skill on business success of Indian
micro-enterprises.
Again, empirical study conducted by Dawuda (2015) on the financial records keeping behaviour of
small-scale businesses in the Bolgatanga Municipality revealed that factors that accounted for the failure of
small-scale businesses include improper record keeping due to lack of knowledge in accounting, unqualified
accounting staff and lack of internal control procedures. The study concludes that the overall effect of poor
financial record keeping is that the owners of small- scale businesses cannot perform financial analysis to
establish trends to know whether their businesses are doing well or not; hence, they cannot predict and
understand the business environment. This can lead to business failure (Dawuda, 2015).
Ansong (2011) also investigated the knowledge level of university freshmen business students and
finds that there is a widespread financial illiteracy among them. In the study, the researcher found out
that individuals who completed university are more likely to be financially well informed than those with
low level of education. Owusu (2015) conducted a study to assess the level of financial literacy among
teachers in the Sekyere East district of the Ashanti Region of Ghana. The study concluded that teachers
in the district have low financial literacy with an overall mean percentage score of 53.68 per cent on
basic personal finance.
Garg and Singh (2018) analysed the level of financial literacy among the youth. The study focused at
how socio-economic and demographic factors, such as age, gender, marital status and income, influence
financial literacy level of youth and whether there is any interrelationship among financial knowledge,
financial attitude and financial behaviour. The study concluded that the strong endeavour of the world
economies to improve the financial well-being of their citizens has contributed to the rising importance
of financial literacy as it equips the individuals to take quality financial decisions to enhance their
financial well-being (Garg & Singh, 2018). Akoto (2017) analysed the personal financial literacy among
cocoa farmers in the Assin Foso and Twifo Praso districts of the Central region of Ghana. From a survey
of 569 cocoa farmers, the results show that farmers have lower levels of financial knowledge, which
affects their performance.

Conceptual Framework and Empirical Model

The conceptual framework of the study is a graphical representation of how financial literacy affects
firm performance (financial and non-financial). It is known that financial literacy is made up of financial
awareness, knowledge and attitude (Eniola & Entebang, 2017), which is an aspect of human capital (Dar
& Mishra, 2019). These together affect firms’ performance as a whole and can affect financial and non-
financial performance separately. Beyond this, there can be other environmental factors, such as taxation
and regulation, expected to have effect on firms’ performance. Other individual characteristics (age of
the manager, education and experience) can also influence the effectiveness of financial literacy on
firms’ performance (Garg & Singh, 2018). The empirical model for the study is the structural equation
modelling proposed in Figure 1, created to achieve the research objectives. The framework shows the
linkage from financial literacy to firm performance. The hypotheses argued are as follows:
6 Global Business Review

Figure 1. Framework of the Study

Source: The authors.
Notes: FAt = Financial attitude, FA = financial awareness, FK = financial knowledge, FL = financial literacy, FP = financial
performance, NFP = non-financial performance, Reg = regulation, Tax = taxation.

●● Financial literacy has a significant positive effect on the firm’s financial performance.
●● Financial literacy has a significant positive effect on the firm’s non-financial performance.

Operational Definition
There seems to be no agreed definition of SMEs across the world. The definition varies for each country
and sector (Quartey et al., 2017; Nyathi, Nyoni, Nyoni, & Bonga, 2018). Many authors defined SMEs as
a number of persons engaged by the firm or total assets of the turnover generated (Perera & Chand, 2015;
Sitharam & Hoque, 2016). The European Commission’s definition of SME takes into account three
different factors. These are the level of employment, level of turnover and the size of balance sheet.
Micro-enterprises are defined as enterprises that employ up to nine people and whose annual turnover or
annual balance sheet total does not exceed €2 million. Small enterprises are defined as enterprises that
employ up to 49 persons and whose annual turnover or annual balance sheet does not exceed €10 million.
However, the most used criterion is based on the number of employees (European Commission, 2015).
In contextualizing and defining small-scale enterprises in Ghana, the National Board for Small-Scale
Industries (NBSSI), which is the regulatory body for SMEs, applies both the fixed asset and number of
employee’s criteria in identifying small-scale enterprises. In Ghana, most of the definitions of SMEs are
based on the number of workers engaged by the enterprise (Kayanula & Quartey, 2000). The Ghana
Statistical Service (GSS, 2017) classifies establishments by the number of employees. There are three
categories of establishments which are micro-sized, employing not more than five people; small-sized
employing six up to 30 persons and medium-sized establishments which engage from 31 to 100 persons.
However, the NBSSI in Ghana uses both fixed assets and number of employees to define what constitutes
SMEs in Ghana. It defines SMEs as a firm with not more than 29 employees and which has plant and
machinery (excluding land, building and vehicles) not exceeding 10 million Ghana Cedis. The present
study adopts the definition of GSS (2017). The study combined the micro and small enterprises and so
classified them as small enterprises firms with up to 30 employees.
Performance can be defined as the accuracy and competence of doing assigned tasks to achieve the
desired goal (Carson & Thau, 2014). Small-scale enterprises’ performance includes growth, resulting
from expansion in sale operations or assets used in generating profitability. It is generally about the
success of the business (Chatterjee & Das, 2016). Financial performance refers to the degree to which
financial objectives have been accomplished. It is the process of measuring the results of a firm’s policies
and operations in monetary terms. It includes profit, sales, growth and market share. Performance is the
Tuffour et al. 7

evaluation of outcomes of an organization as a result of management decisions on resources and

execution of those decisions (Liden, Wayne, Liao, & Meuser, 2013). Performance measurements improve
control of organization’s resources (Tuffour et al., 2015). Non-financial performance, on the other hand,
is the qualitative measures that cannot be expressed in monetary units such as customers’ satisfaction,
competitiveness and innovation.
Firm performance has different dimensions, and there are a variety of measures to assess performance
of businesses. The applicable measures are influenced by the specific interests of the stakeholders and
the industry of focus. Firm performance measures consist of financial and non-financial (operational)
measures (Marie, Ibrahim, & Al Nasser, 2014; Rylková, 2015). The set of financial performance measures
are typically classified as accounting-based and market-based measures. The accounting-based
performance include indicators return on assets, return on equity, net interest margin and cost-to-income
ratio (Alshatti, 2015; Faleye & Krishnan, 2017). Market-based measures of performance represent the
valuation by capital markets of the operations of any given company in relation to its estimated accounting
or economic value (Faleye & Krishnan, 2017). The most commonly used proxies for market-based
measures include Tobin’s Q ratio and market-to-book ratio (Badu & Appiah, 2017).
The combined use of non-financial and financial performance measures provides a broad and balanced
picture and enables firms to appreciate and serve the information priorities and investments interests of
various stakeholder constituents. Indicators of non-financial performance include quality of service to
customers, customer satisfaction, level of employee satisfaction and environmental and social
contributions (Kaymak & Bektas, 2017; Marie et al., 2014). Non-financial performance indicators are
able to ultimately influence improved firm effectiveness and financial performance (Eccles, Ioannou, &
Serafeim, 2014; Ho, Wu, & Wu, 2014).
Financial Attitude can be defined as the application of financial principles to create and maintain
value through decision making and proper resource management (Ragina, Ezat, Junid, & Moshiri, 2011).
Financial attitudes, such as risk averseness, time orientation, social environmental factors and training,
help improve performance. The keenness of managers of small-scale business to learn more about
managing their finance will add more value to profitability and hence increase their performance. It has
been postulated that financial knowledge is a key precondition for a manager to have a positive financial
attitude (Hathaway & Khatiwada, 2008). Financial attitude is the capacity to assess new and emerging
financial instruments (Eniola & Entebang, 2017).
Financial awareness as defined by Tezel (2015) is the capability to capture the understanding of
overall impacts of financial decisions on one’s circumstances and to make the right decisions related to
cash management, precautions and opportunity for budgeted planning. Financial awareness helps one to
know and be aware of the right decisions to make, and its impact on business performance hence
promoting effective decision making leading to profitability (Sulaiman, 2014). It also relates to the
understanding and ability to handle available financial strategies and being aware about the sources of
such financial service providers (Eniola & Entebang, 2017; Lusardi & Tufano, 2009).
Financial knowledge is defined as the understanding of key financial terms and concepts needed to
function daily (Huston, 2010). Financial knowledge plays an essential role in decision making regardless
of what the subject matter may be. Persons with financial knowledge on key issues of their area of
specification are likely to be more competent as compared to persons with no or low financial knowledge.
That is, it gives them the ability to manage financial matters concerning their business performance.
Financial knowledge relates to understanding of basic financial concepts of how to manage business
finance (Eniola & Entebang, 2017), knowledgeable about financial matters (Lusardi & Michell, 2006),
being financial knowledge competent (Hung, Parker, & Yoong, 2009) and a person becomes financially
literate if such a person can apply this knowledge (Huston, 2010). The literature review serves as the
basis for the methodology.
8 Global Business Review

Methodology

Research Design, Data and Sampling

This study employs quantitative approach to access the effect of financial literacy among managers of
small-scale enterprises in the La Nkwantanang Madina Municipal Assembly. The respondents were
managers of the small-scale enterprises who provided primary data information on the variables of interest
(see Table 1) to test the formulated hypotheses (Fisher, 2010) in Figure 1. The study adopted the cross-
sectional survey design. The choice of a survey design was to provide quantitative description of trends,
attitudes or opinions of the managers of small-scale businesses. The study administered 200 questionnaires
to the respondents to obtain reliable data (on study variables as indicated in Table 1) to help achieve the
stated objectives of this study. To aid the analysis, the Statistical Package for Social Sciences (SPSS)
version 21.0 was used to generate descriptive statistics, while partial least squares approach to structural
equation modelling (PLS–SEM) was used to estimate the structural model. The data preparation processes
involve the entry of data into a database, data cleaning and finding any missing responses.

Data Collection Instrument

A structured questionnaire was used to collect vital information from respondents. The questionnaire
consisted of closed-ended questions to capture demographic characteristics of the respondents, awareness
of financial literacy, financial knowledge on financial issues, attitude towards financial literacy,
performance criteria and external and internal firms’ specific factors (Abouzeedan, 2010) (as indicated
in Table 1). The key variables were measured on a 5-point Likert Scale (Likert, 1932) from 1 (strongly
disagree) to 5 (strongly agree).
The adoption of financial and non-financial measures aligns with the stakeholder theory, which
favours the multi-dimensional approach for firm performance measurement as that will satisfy the
various stakeholders who have stake or can influence the firm’s performance (Kaplan, 2009, p. 14). With
reference to the operational definition and the primary data use, instruments from empirical literature
were adapted. Performance indicators were adapted from Mac an Bhaird (2010) and the business
dimension of the Malcolm Baldrige National Quality Award (National Institute of Standard and
Technology [NIST], 1987) framework. For financial knowledge, Lusardi and Scheresberg (2013) was
adapted. Financial awareness construct is referred to as in Oseifuah (2010) and Sulaiman (2014), while
financial attitude is adapted from Sabri and MacDonald (2010).

Table 1. Financial Literacy and Control Variables

Variables Measurement Criteria

Financial literacy Financial knowledge, attitude and awareness
Financial performance Profit, revenue and sales
Non-financial performance Customer and employee satisfaction, growth in number of customers,
market size; competitive advantage, brand loyalty
Individual characteristics Age of the individual, educational level and level of experience
Firms’ characteristics Age of the firm, number of employees
External/environmental characteristics Tax, regulation
Source: The authors.
Tuffour et al. 9

A pilot test consisting of 30 small-scale managers was conducted in the Ga West District assembly to
ascertain the reliability of the instrument. The researchers adopted the self-administered type of
questionnaire administration. A total of 200 self-completed questionnaires were retrieved from the
respondents through personal contact for sorting and data clearing. In the present study, we controlled
gender, education, experience of managers, tax, regulations as well as age of company as these factors
have been found to be important in related previous studies (Cohen, 1993; Russ & McNeilly, 1995).
Within these methodological parameters, analysis and discussion are conducted on financial literacy and
small-scale enterprises performance.

Data Analysis, Results and Discussion

Demographic Characteristics
The quantitative data were analysed using descriptive and structural regression analytic technique.
Descriptive statistics were used to assess the demographic profile of the respondents, while structural
equation modelling was used to assess the effect of financial literacy on the performance of small-scale
businesses. The data collected shows that 45 per cent of the respondents were males, while 55 per cent
were females. This conforms to statistics revealed by the GSS (2017), where the informal sector
constitutes about 70 per cent of the economy. The descriptive statistics show that 67.5 per cent of the
respondents are within the ages of 18–35. Those within the ages of 36–59 are 30.5 per cent and the aged
60+ are only 2 per cent. The age distribution shows that most of the mangers are youth.1
In terms of sector of operation, 10.5 per cent of the respondents engage in manufacturing, 48.5 per
cent in whole selling/retailing and 41 per cent in services provision. Single managers constitute about 53
per cent of the respondents, while 41.5 per cent of the respondents are married. The rest (5.5%) are made
up of divorced, widows, widowers and separated.
Table 2 shows that respondents with pre-tertiary educational level (basic, secondary, ordinary and
advanced levels) are 53.5 per cent. Those with tertiary level education constitute about 31.5 per cent,
while those with other educational qualifications are 15 per cent. The distribution of the managers
indicates that people with different levels of educational qualifications are engaged in the informal sector
of the economy.

Table 2. Highest Level of Education

Highest Level of Education Frequency Per cent

Basic 29 14.5
Secondary 66 33.0
Advanced level 6 3.0
Ordinary level 6 3.0
Higher National Diploma (HND) 15 7.5
Tertiary diploma 44 22.0
Postgraduate (masters) 4 2.0
Others 30 15.0
Total 200 100
Source: The authors.
10 Global Business Review

Most of the managers have been managing their businesses for the past 10 years (87%), while the rest
have varying number of years of management. The statistics shows that 54.4 per cent of the respondents’
firms are between 1 and 5 years, while 30.0 per cent of the respondents’ firms are between 6 and 10
years. This is an indication that majority of the respondents have businesses which are relatively young.
The demographic characteristics lay the foundation for the analysis of the effect of financial literacy on
SMEs’ performance.

Validity and Reliability

The study assessed the overall fitness of the study instruments by way of a construct validity since the
instrument was used is a new setting. Reliability test embraces quality criteria made of the composite
reliability and Cronbach’s alpha. If the composite reliability and Cronbach’s alpha measurements have
coefficients of 0.7 and above, they show that variables have acknowledged reliability. The significant
level for reflective indicator factor loadings is 0.5. Hence, the final model was decided after dropping out
insignificant factors having factor loadings of less than 0.5. Validity test is measured using the average
variance extracted (AVE). The significant level for AVE is less or equal to 10. The results in Table 3
shows that the constructs are all reliable and valid. Thus, the reliability and validity results make room
for the analysis and discussion of the results.

Results and Discussion

Figure 2 shows the path coefficients, and Table 4 contains the significance of the independent
variables of the structural equation model. The path coefficients are standardized versions of multiple
regression weights which can be used to examine the possible relationship among the variables. The
t-statistics and the p-values (see Table 4) show the significant levels of the variables in the structural
equation modelling.

Table 3. Reliability and Validity Test Results

Cronbach’s Average Variance

Variables Alpha Extracted Composite Reliability
Financial attitude 0.749 0.572 0.842
Financial awareness 0.872 0.532 0.900
Financial knowledge 0.891 0.541 0.913
Financial performance 0.866 0.732 0.914
Non-financial performance 0.857 0.640 0.898
Source: The authors.

The results (see Table 4) show that the effect of financial literacy among managers on the financial
performance is positive. The path coefficient results of 0.477 (and p-value of 0.00) is significant. This
supports the study hypothesis presented in the framework. A study by Moore (2003) confirms that
financial literacy has a significant effect on the financial performance of firms since firms that had access
to financial information had profitable investments undertaken. This results conforms to that of Moore
(2003) and Garg and Singh (2018).
Tuffour et al. 11

Figure 2. Path Coefficients

Source: The authors.
Notes: FAt = Financial attitude, FA = financial awareness, FK = financial knowledge, FL = financial literacy, FP = financial
performance, NFP = non-financial performance, Reg = regulation, Tax = taxation.

Table 4. Path Coefficients and Significance of the Variables

Coefficients Standard Deviation t-Statistics p-Values
FAt → FL 0.413 0.030 13.760 0.000
FA → FL 0.241 0.014 17.214 0.000
FK → FL 0.424 0.019 22.315 0.000
FL → FP 0.477 0.075 6.360 0.000
FL → NFP 0.386 0.091 4.241 0.001
FL → FirmP 0.458 0.082 5.639 0.000
Source: The authors.
Notes: FAt = Financial attitude, FA = financial awareness, FK = financial knowledge, FL = financial literacy, FP = financial
performance, NFP = non-financial performance, FirmP = firm performance.

The effect of financial literacy among managers is positive on non-financial performance, confirming
the stated hypothesis. The path coefficient with results of 0.386 (and p-value of 0.000) is significant.
Dawuda (2015) attested that due to the low level of financial literacy among small-scale business, they
could not perform financial analysis to establish trends and to know whether their businesses are doing
well or not. Hence, they cannot predict and understand the business environment which lead to a poor
performance of non-financial outcomes of the firms.
The results reveal that financial knowledge has a significant positive effect on financial literacy. Thus,
as managers become more financially knowledgeable of finance-related issues, they are able to make better
financial decisions. The same applies to financial knowledge and attitude, which have a significant positive
effect on financial literacy. Among the three items, financial knowledge is the most important with the
largest coefficient. This is followed by financial awareness and attitude. It has been revealed that adequate
financial education can partially decrease financial difficulties (Dahmen & Rodriguez, 2014), while
inability to predict and understand the business environment can lead to business failure (Dawuda, 2015).
Table 5 shows that the direct effect of financial attitude corroborates the indirect effect on financial
performance. There is a significant positive effect of financial attitude on financial performance for the
SMEs. In addition, financial attitude has a significant positive effect on non-financial performance. Also,
the results show that financial awareness has a significant positive effect on both financial and non-financial
12 Global Business Review

performance. In a similar way, financial knowledge has a significant positive effect on both financial and
non-financial performance. Financial knowledge seems to be the most significant and has the highest
coefficient (effect) in both cases as revealed in other studies (Dahmen & Rodriguez, 2014; Dawuda, 2015).
Control variables of the study include individual characteristics: age, educational level and experience
and other external/environmental and firms’ characteristics. Unlike earlier studies which did not include
control variables (Eniola & Entebang, 2017), the results of the present study (see Table 6) show that the
age of the managers does not significantly enhance financial performance. This is viewed from the
perspective that as the managers advance in age, they are constrained by ability to exert enough physical
effort to operate and manage their businesses. Also, age does not influence the level of financial literacy.
Older managers are financial knowledge deficient. This may be due to the fact that the aged are less likely
to be abreast with contemporary financial issues. As indicated by Garg and Singh (2018), demographic
factors, such as age, gender and marital status, can affect the quality of financial decisions made by an
individual. According to Tuffour et al. (2018), age affects attitude to use mobile commerce services.
On the other hand, education seems to have a positive effect on firm’s financial performance contrary
to the finding that skilled labour does not contribute to the technical efficiency of manufacturing SMEs
(Charoenrat & Harvie, 2017). The level of education attained by the manager has high tendency to
enhance both financial literacy and firm’s performance as it provides them with information and ability
to undertake basic financial activities such as bookkeeping and an appreciation of the work environment.
The experience of the manager in managing the small-scale business has positive but insignificant effect
on firm’s performance. Thus, as the managers operate their business, the use of previous experience does
not significantly enhance firm’s performance (financial and non-financial).
For the environmental factors, it is revealed that taxes paid by small-scale enterprises, while positively
influencing the regulation of such business, directly harms the achievement of financial performance but
positively enhances non-financial performance. Relatively, the minimal regulatory environment enhances
small business non-financial performance. With these findings, conclusions can be drawn.

Table 5. Indirect Effect Results of Financial Literacy on Firm Performance

Coefficients Standard Deviation t-Statistics p-Values

FAt → FP 0.333 0.078 4.297 0.000
FA → FP 0.346 0.075 4.622 0.000
FK → FP 0.417 0.073 5.699 0.000
FAt → NFP 0.334 0.084 3.964 0.000
FA → NFP 0.312 0.093 3.341 0.001
FK → NFP 0.386 0.084 4.580 0.000
Source: The authors.
Notes: FP = Financial performance, NFP = non-financial performance, FAt = financial attitude, FA = financial awareness, FK =
financial knowledge.

Table 6. Effect of Control Variables

Coefficients Standard Deviation t-Statistics p-Values

Age → FL −0.010 0.074 −0.135 0.897
Age → FP 0.006 0.005 1.200 0.227

(Table 6 continued)
Tuffour et al. 13

(Table 6 continued)

Coefficients Standard Deviation t-Statistics p-Values

Edu → FL 0.109 0.066 1.654 0.098
Edu → FP 0.013 0.017 0.746 0.456
Exp → FL 0.051 0.096 0.532 0.598
Exp → FP 0.006 0.008 0.751 0.433
Reg → FP −0.008 0.006 −1.333 0.138
Reg → NFP 0.026 0.069 0.376 0.702
Tax → FP −0.053 0.092 0.576 0.568
Tax → NFP 0.129 0.096 1.344 0.139
Tax → Reg 0.444 0.056 7.875 0.000
Source: The authors.
Notes: FL = Financial literacy, FP = financial performance, NFP = non-financial performance, Age = age of managers, Edu =
educational level of managers, Exp = experience of managers, Reg = regulation, Tax = taxation.

Conclusion
The results reveal that financial knowledge has a significant positive effect on financial literacy. The
same applies to financial awareness and attitude, which have significant positive effects on financial
literacy. Generally, all the financial literacy components: financial awareness, attitude and knowledge
have significant positive effects on financial literacy. The study concludes that financial literacy among
small-scale enterprise managers has a positive effect on their firm’s performance. The effect of financial
literacy of managers on the financial performance is shown by the results as positive. The effect of
financial literacy among managers is also positive on non-financial performance.
Moreover, financial attitude has a significant positive effect on non-financial performance. Also, the
results show that financial awareness has a significant positive effect on both financial and non-financial
performance. In a similar way, financial knowledge has a significant positive effect on both financial and
non-financial performance. Financial knowledge seems to be the most significant element of financial
literacy in influencing SMEs’ performance.
The study also concludes that managers who were financially literate performed well both financially
and non-financially due to their knowledge and understanding of financial issues. The individual factors
have no significant effect on firm performance. These results have managerial implications.

Managerial Policy Implications

Empirical findings of this study imply that the government of Ghana and institutions concerned with the
development of small-scale enterprises should implement more financial literacy policies to enhance
small enterprises’ performance for sustainable growth. Also, since the small-scale enterprises industry is
one of Ghana’s economic strengths, due to its primary drive for employment, there is a need to ensure
sound operations of their activities. Therefore, specific policy implications will need to focus on (a)
organizing financial training programmes (by regulatory bodies of SMEs, government agencies along
14 Global Business Review

with financial institutions) to educate managers of SMEs on the need for financial literacy in management
of their business. This will make small-scale enterprises to expand and grow, which will contribute
greatly to the Ghanaian economy, (b) incentivizing financial knowledge acquisition such as subsides
should be allocated to small-scale sector to enhance innovation, competitiveness and customer satisfaction
to improve performance, (c) leveraging on the available financial knowledge education by SME
managers, (d) training (on financial attitude) on the application of financial principles to create and
maintain value through decision making and proper resource management and (e) educating SME
managers on financial awareness issues of cash management, precautions and opportunity for budgeted
planning for effective financial design. In spite of these implications, there are limitations which warrants
further research.

Limitations of the Study

The obvious limitation of the study is its cross-sectional design. Firm conclusions about the direction of
causality implied in the modelling should be cautiously taken. As such, a robust causal inferences could
be drawn through testing models using longitudinal data. Also, the study has relied on only quantitative
data collection and analytical approach without involving qualitative techniques, which provides more
detailed and wider perspectives. Therefore, future studies should consider mixed approach, which
integrates the two methods to provide broader scope to studies of this nature, thereby giving the study a
holistic view. These give room for future research areas.

Areas for Further Studies

The present study was descriptive and cross sectional in nature and given the corresponding results, and
there are some drawbacks. Longitudinal studies should be conducted in future to test the proposed model
so as to reassess directions of causality among the study variables. Though the instrument shows scientific
reliability and validity, yet this is the first study for which it has been used in the small-scale sector in
Ghana, and more studies are required for general applicability.

Acknowledgement
The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve
the quality of the article. Usual disclaimers apply.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of
this article.

Funding
The authors received no financial support for the research, authorship and/or publication of this article.

Note
1 According to the definition of youth in the Ministry of Youth and Sports (2010).
Tuffour et al. 15

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