Financial literacy in SMEs: a study of knowledge and practices in Umgungundlovu District, Kwa-Zulu Natal, South Africa

Financial literacy is a critical factor that significantly impacts the success and achievement of small and medium enterprises' (SMEs) objectives. Unfortunately, many SMEs struggle with inadequate financial literacy, which hinders their ability to make informed decisions, manage resources effectively and drive growth. This knowledge gap can lead to poor financial planning, inefficient resource allocation and a lack of resilience, ultimately threatening the long-term sustainability of these businesses. By prioritising financial literacy, SMEs can enhance their capacity to develop realistic financial projections and budgets. This study investigated the level of financial literacy among small and medium enterprises (SMEs), examining both their knowledge and practical applications of financial concepts. Additionally, the research explored the correlation between SMEs' financial literacy and their socio-demographic characteristics, such as business size, industry, owner's age, education, and experience. A quantitative research approach was employed to achieve the study's objectives and primary data was collected through a questionnaire survey administered to a sample of 105 small and medium enterprises (SMEs) located in the uMgungundlovu District of KwaZulu-Natal, South Africa. The data analysis was conducted using SPSS version 23, leveraging both descriptive and inferential statistics to extract insights and meaning from the data. The findings of this study indicate that small and medium enterprises (SMEs) in the uMgungundlovu District exhibit low levels of financial knowledge and practice. Notably, the research revealed significant positive correlations between financial knowledge and various factors, including: age, qualifications, number of employees and annual turnover. A positive relationship was also established between financial practice and annual turnover. This study recommends that stakeholders, for instance, government agencies and banks should organise financial education programmes that invest in improving financial practices of small and medium enterprises. It is also recommended that small and medium enterprises pursue short courses in basic accounting to improve their knowledge base. Key Words: Financial Literacy, Financial Practice, Budgeting, Small And Medium Enterprises