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Individual entrepreneurial behavior and financial literacy

Author

Listed:
  • Ester Muñoz-Céspedes

    (Universidad Rey Juan Carlos (Madrid))

  • Raquel Ibar-Alonso

    (Universidad Rey Juan Carlos (Madrid))

  • Miguel Cuerdo-Mir

    (Universidad Rey Juan Carlos (Madrid))

Abstract

The technological revolution we have been witnessing over the last 30 years is bringing about important changes in business management, specifically in the conception, development, and management of its financial aspects. How to face these challenges is a particularly critical question for individual entrepreneurs who have to assume a much greater responsibility for decisions than in other corporate environments. In this sense, it is very important to understand the financial capabilities and skills and their limitations of this type of entrepreneurship, which is so important for the renewal and extension of the business community in any developed economy. Based on an extensive official survey of this type of entrepreneurship, this research proposes a logistic regression modeling, in order to find out the level of financial knowledge of this business group. One of the findings of this research is that individual entrepreneurs have a higher level of financial knowledge than salaried workers, with a higher qualification in this respect in the case of individual entrepreneurs with employees. This study analyses the link between individual entrepreneurs or self-employed workers – with or without employees – and financial literacy. In addition, we investigated the relationship between this group with their socio-demographic characteristics, financial product holdings, financial planning, and financial fragility. Different binary logistic regression models with maximum likelihood were estimated using a sample of individual entrepreneurs and self-employed workers from the Survey of Financial Competences database conducted in Spain to achieve this. The results of the study show that individuals who choose to be individual entrepreneurs or self-employed, and in particular those with hired workers, had a higher level of financial literacy than salaried workers. Moreover, it was confirmed that financial literacy complements the explanatory power of the other variables analyzed with respect to sole proprietors without employees, although not to a significant degree. The limitations of this work are due to the use of data from the Financial Skills Survey, so some dichotomous variables offer very generic information. In addition, the database is cross-sectional and we cannot analyze variations between different periods. No research before had applied the relationships between the behavior of individual entrepreneurs, with and without employees, and financial competencies using logistic functions and on the basis of a rigorous and comprehensive formal questionnaire. The conclusions provide a valuable perspective for developing training programs for this type of human capital aimed at raising the financial skills of individual entrepreneurs to improve personal and business management.

Suggested Citation

  • Ester Muñoz-Céspedes & Raquel Ibar-Alonso & Miguel Cuerdo-Mir, 2024. "Individual entrepreneurial behavior and financial literacy," International Entrepreneurship and Management Journal, Springer, vol. 20(3), pages 2263-2285, September.
    • Handle: RePEc:spr:intemj:v:20:y:2024:i:3:d:10.1007_s11365-023-00936-4
    DOI: 10.1007/s11365-023-00936-4
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