Financial literacy seems to be the strength of small and medium Portuguese entrepreneurs who lead micro and small companies. This conclusion was found in the recent report promoted by the National Council of Financial Supervisors and the Ministry of Economy and the Sea, and published by Banco de Portugal. among 14 countries of the International Network for Financial Education of the Organization for Cooperation and Development in Europe (OECD/INFE). More specifically, they occupy the first place in companies with up to nine employees and second place in companies with 10 to 49 employees. These are very positive results that must be maintained. But let’s detail what is at stake and what Portuguese entrepreneurs can improve
Financial literacy: what does it consist of?
In defining the concept, the Portuguese Banking Association helps, defining financial literacy as the knowledge and understanding of financial concepts that result in the ability to make informed decisions regarding money management.
The importance of financial literacy in everyday life
Its importance seems obvious. By holding the basic financial concepts of financial literacy, you will more easily develop savings habits, responsible attitudes towards contracting credit, and will be able to interpret news related to the economy. to your risk profile, take out credit knowing what debt limits you will be able to support without going into financial failure and, last but not least, do not be fooled by entities not authorized by the Bank of Portugal that offer you easy money. , the greater your financial literacy as a private individual or entrepreneur, the greater your ability to efficiently manage your money.
Why should we invest in financial education?
If financial literacy is important in the daily life of individuals and companies, the reason why you should invest in financial education also seems obvious. If in personal terms it is about managing your money effectively, it will make even more sense for your company. Consider how you should invest in financial education because:
1. There are more and more financial products on the market
In fact, with the technological development more financial products appeared. And increasingly complex, which can make their understanding more difficult and thus a greater risk. Not to mention cryptocurrencies, EFT’s, futures and options. The best thing is to know what you might be investing in.
2. The future is uncertain
At a time when inflation and interest rates are rising, knowing what can happen to your credit and investment is of paramount importance. And above all, knowing how to defend yourself without jeopardizing your personal financial health and that of your company. Also read: How far can interest rates go?
3. Greater knowledge will allow better decisions
For seems redundant, right? Well, the more you know, the better decisions you can make financially. In the case of your company, a good decision can be the difference between getting into difficulties or developing your business sustainably.
But how are Portuguese entrepreneurs doing?
The study was carried out online in August 2021 with a sample of 1541 companies in which 73.6% have male managers and 70.9% have been entrepreneurs for more than 10 years. financial literacy have higher education, a result consistent with the fact that people with a higher level of education are more receptive to answering online surveys. of the pandemic crisis and its response to it. Thus, the results were presented when a:Financial literacy indicator Digitization indicatorFinancial productsManagement and planning of company financesImpact of the Covid-19 crisis and use of State support
Indicator of financial literacy of small business owners
This indicator aggregates the indicators of knowledge, behavior and financial attitudes of entrepreneurs, with an average value of 78.7, with no differences between men and women. However, respondents with degrees show a higher value, especially if they are over 40 years old. The median is above 82 points. On the other hand, they are higher in entrepreneurs of companies with 10 to 49 employees, increasing within these with the volume of business. In sectoral terms, entrepreneurs in the areas of business services (consulting, scientific, technical, administrative and other activities) and wholesale and retail trade show better financial literacy results
Here, too, the results are consistent with the respondents’ level of education and the number of employees in the companies. In terms of the sector, there is a lower rate in construction companies and in the extractive and manufacturing sector.
Financial products known and contracted by small business owners
As for financial products, entrepreneurs identified civil liability insurance (contracted by 49.2% of companies), credit cards (46.7%), bank loans (45%), and insurance multirisk (44.9%).82.1% of respondents select the product to purchase after comparing several alternatives. But 18.2% mentioned that they only consider the alternatives within the credit institution where they have the company’s account. Still in terms of credit, only 26.3% have already contracted lines of credit filed with the State, although most people are aware of them. But while 41.3% reported knowing that they could finance the company by going to the capital market, it is rare for them to follow this path. It is now important to mention that the company account is distinct from the personal account in 98.5%. Although it is a high percentage, it should be 100%. Also read: 10 English terms you need to know to follow the markets
Management and planning of company finances
Regarding this point, the generality asks for external help regarding accounting (68.2%) and taxes (47.7%). 54.8% ask for help from accountants and more than a third use financial intermediaries or family or friends in making financial decisions. But about a third delegates control to someone else. Almost all of them have insurance, their own funds or money set aside to deal with unforeseen circumstances such as theft of equipment. However, about 5% said that if this happened, they would be forced to close the company. Long-term planning is common to all entrepreneurs who rely more on planning than on their instincts. And prudence in investments is another common factor among them, preferring low-risk investments to investments that, due to the associated risk, could somehow jeopardize the continuity of the company.
Impact of the Covid-19 crisis and use of State support
The Covid-19 crisis had a negative impact on the company’s accounts, either on its profits (61.7%), on its turnover (60%) or on its liquidity (41.8%), with the majority facing serious treasury problems during this period. In this sense, 62.4% responded that they resorted to State support such as the lay-off of workers (32.1%), credit moratoriums (25.2%) and credit lines ( 24.3%);.
The level of financial literacy of small Portuguese entrepreneurs appears to be high. However, we cannot forget that because it is online, only those who feel comfortable with this type of survey responded. Which means that despite the good results, investment in financial literacy must and must continue. Only in this way will the capacity to efficiently manage companies, whatever their size, be greater.