Financial risk tolerance and financial behaviour of microentrepreneurs in Ghana

This study investigates the psychological, social, and familial determinants of financial risk tolerance and their influence on financial behaviour among microentrepreneurs in Ghana. Drawing on Prospect Theory and Family Financial Socialisation (FFS) Theory, the study employed a cross-sectional survey of 6,000 microentrepreneurs and analysed the data using Partial Least Squares Structural Equation Modelling (PLS-SEM). The model explained 74.6% of the variance in financial risk tolerance and 65.9% in financial behaviour, underscoring its predictive strength. Among the predictors, financial threat emerged as the strongest (β = 0.392), indicating that perceived financial insecurity significantly drives risk-taking behaviour as a coping strategy. Optimism (β = 0.249), deliberative thinking (β = 0.189), trust (β = 0.079), and family financial socialisation (β = 0.068) also significantly influenced financial risk tolerance. Furthermore, both family financial socialisation (β = 0.490) and financial risk tolerance (β = 0.411) exerted strong positive effects on financial behaviour. These findings highlight a nuanced behavioural model in which emotional and cognitive responses to financial threat, rather than demographic variables, serve as primary catalysts for entrepreneurial financial decisions. The results provide empirical validation for extending Prospect Theory to contexts of economic precarity and underscore the importance of FFS in shaping sustainable financial habits. The study offers important implications for policymakers and financial institutions, advocating for interventions that combine cognitive training, emotional resilience, and family-based financial literacy to promote responsible financial behaviour among microentrepreneurs in low-income economies.