Financial Literacy, Informal Debt, and Psychological Well-Being Among Small Business Entrepreneurs

Abstract

This study investigates the relationship between financial literacy, informal debt, and psychological well-being in a large sample of small business entrepreneurs. The paper finds a strong latent demand for financial education, which is particularly high among female, younger, and less educated entrepreneurs. Entrepreneurs who have not adopted good financial management practices believe that better levels of financial literacy would help them improve their business’s performance. The study also shows that entrepreneurs with a higher need for financial education tend to rely more on moneylender debt. By contrast, assistance to entrepreneurs who are looking for new sources of capital tend to mitigate their dependency on moneylender debt. Finally, the study shows entrepreneurs who incur in moneylender debt are more likely to have worse levels of psychological well-being.

Keywords: D14, D22, D24, G21, I15, I31, L26, M13