Lawrence Nicholson | FOBs and financial literacy

Financial literacy? What is that? I don’t think I need that to run a successful business! I have been running this business for years and I think I am okay.

The foregoing comments are typical of the exchanges when one speaks to many owners and operators of MSMEs or small and medium-sized enterprises in Jamaica on the subject of financial literacy.

It is unclear the percentage of operators and owners holding these views. It might be time to open the door to provide more opportunities for MSMEs to become aware of the financial imperatives that will help them optimise their resources, especially given the increased nefarious activities in cyberspace to relieve businesses of their hard-earned income.

It might be the prime time for a possible government-private sector partnership to address a glaring gap among MSMEs, where up to 70 per cent are family-owned businesses.

In 2012, I coordinated a group of tertiary students in conducting a national baseline survey on behalf of the Financial Services Commission, FSC, to gauge the financial literacy of Jamaicans. As a financial services regulator and a member of the Organisation for Economic Cooperation and Development, the FSC was required to conduct this survey as part of the international network on financial education.

The survey revealed a mixed bag: while not on the floor, the level of financial literacy was not encouraging, with less than 50 per cent of Jamaicans found to be financially literate.

In the decade that followed, it is not clear whether the FSC followed recommendations from that survey, including engaging in forums to educate Jamaicans in financial literacy. However, in 2022 the FSC conducted a baseline study on financial literacy targeting youth, ages 19-25. Its aims included ascertaining the level of financial literacy among the target group, assessing the target group’s awareness of the existence of financial instruments and measuring the target group’s understanding of the uses of financial services, such as loans and mobile payment products.

The FSC must be commended for its continued efforts in educating various groups on financial literacy. It might be time to turn its attention to MSMEs and small FOBs.

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing. This translates to learning how to manage your money wisely to maximise returns.

There are many benefits for businesses to be financially literate, including the ability to make better financial decisions, being able to create structured and realistic budgets, developing realistic forecast of sales and profits, and being better equipped to make sound investment decisions.

Having less financial stress and anxiety is an outcome from these and other benefits of financial literacy. When owners of businesses are financially literate, they have the foundation of a relationship with money – a lifelong journey of learning. The earlier the intervention, the greater the benefits for businesses.

The data shows that there are active participants in the space, helping to provide opportunities for MSMEs and small FOBs to become financially literate.

Credit must be given to the banks which have engaged their clients and potential clients, as well as foundations. For example, the Honey Bun Foundation has a programme that includes training participating small businesses in different aspects of operating a business, including budgeting and preparing their profit-and-loss projections.

The testimonials from this input have been encouraging. However, the demand for financial literacy among small businesses is outstripping the capacity of banks and foundations.

I am told that there are other active participants providing training in financial literacy for small businesses. If this is the case, the call is more urgent to create a coordinated and structured framework; one that includes meeting the MSMEs where they are ‘on their turf’. For example, is there a programme targeting corner shops and crab city-like operations? This could be a project for an association of family-owned businesses, yet to be formed.

More anon!

Lawrence Nicholson, PhD, is a senior lecturer at the Mona School of Business & Management, University of the West Indies, author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family-Owned Businesses and a director of the RJRGLEANER Communications Group. Email: lawrence.n.08@gmail.com