Role of Financial Literacy in Developing Entrepreneurship and Innovation

Abstract

Research conducted throughout the globe inclines that financial literacy can play a significant role in entrepreneurial success. Financial literacy is understood as the ability to understand finance. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions through their understanding of finances. Any business particularly a new start up business is like a stool with three legs. The three legs are: a good product, an ability to sell the product and get it to the customer who needs it and the ability to manage the money. Like any three – legged stool if any of three legs falls off, the stool falls over. Managing the money is not only about raising money but it is about managing finances inside a company. It is about understanding the minimum that one needs to take intelligent financial decisions for his venture. Thus, the relevance of financial skills to successful entrepreneurship cannot be underestimated. In a dynamic and uncertain business environment entrepreneurs are faced with many challenges that can be overcome by acquiring financial knowledge. It is against this backdrop the present study has been undertaken with the aim of assessing the need of financial literacy to stimulate entrepreneurship. It endeavors to highlight how financial knowledge can lead to better financial decisions making on the part of startups to ensure financial security and success of their enterprise.