Financial literacy and adoption of formal financial services among small business traders: a case study of nakawa market

Abstract

The study analyzed the relationship between financial literacy and adoption of formal financial services among SMEs in Nakawa. More specifically, the study was intended to (i) Analyse the relationship between financial knowledge and adoption of formal financial services among SMEs in Nakawa market, (ii) Analyse the relationship between financial skills and adoption of formal financial services among SMEs in Nakawa market and (3) Analyze the relationship between attitude about formal financial services and adoption of financial services. The study was based on a cross sectional research design targeting 380 Small and Medium Business men and women in Nakawa market. The analysis of the relationship between the different components of financial literacy and adoption of formal financial services was done using Pearson correlation tests and the logistic regression model. The main findings of the study are that financial knowledge has a significant positive relationship with the adoption of formal financial services (Correlation coefficient=0.252 p=0.000). Similarly, financial skills also have a significant relationship with adoption of formal financial services at all conventional levels (Correlation coefficient=0.467 p=0.000). The study also found a significant relation between attitude towards financial services and adoption of the formal financial services (Correlation coefficient=0.364 p=0.000). As a way forward, the study recommends that financial literacy programmes should not only focus on sensitizing the population about the available financial services. If significant results are to be achieved, the programmes should offer a complete set that includes sensitization about the available financial services as well as training the population with the hands-on skills to be able to use the available financial services. Lastly, banks and other financial services providers should also be deliberate about improving their public image especially when it comes to the manner in which they demand for loan repayments. This will result into positive attitudes towards banks.