Determinants of financial literacy: Empirical evidence from micro and small enterprises in India

Abstract

The purpose of this paper is to investigate the determinants of general financial literacy, specific financial literacy and overall financial literacy among the Micro and Small Enterprises (MSEs) entrepreneurs. The data has been collected from 309 respondents from three districts in the Punjab state of India. Using ordered logit model, the results depict that the age of the entrepreneur has positive and significant effect on different types of financial literacy for the MSEs in Punjab. The findings also show that the micro and small-service enterprises have significantly higher level of financial literacy than its other manufacturing counterparts. The study also found that entrepreneurs with higher level of education have significantly higher level of all types of financial literacy. The most influencing determinant that affects the financial literacy of the entrepreneurs is found to be the level of gross profit ratio of the enterprise. Higher the gross profit ratio of the firm, significantly higher will be the level of all three types of financial literacy of the entrepreneurs. For policy perspectives, the present study recommends that firms should keep some portion of their profits to educate their employees that enhance the financial literacy. Government should help the MSEs to educate the firms to improve their level of financial literacy.