Why Entrepreneurs don't talk about Financial Literacy when starting a Business

Need of financial Literacy to Women Entrepreneurs

Date 22.09.2021

About Why Entrepreneurs don't talk about Financial Literacy when starting a Business –

Ever since the world is focused on digitisation, people are now much aware of the social problems and mainly women empowerment. As a result, the growth of Women Entrepreneurs and their success in different fields is now way more than the world has either witnessed or expected.

Apart from this, recent studies have concluded that Women have better leadership skills than their male counterparts due to their emotional stability and patience. So, theoretically, it has been proved that women can multi-task more efficiently than men. Nevertheless, these studies reflect even in the practical world to a great extent.

Well even with such superior capabilities, one of the common parts where most women entrepreneur backs down is in understanding the nuances of finance. A study conducted in 2016 on the lack of financial literacy amongst women entrepreneurs has proven this in a broader way taking every considerable factor on one board.

Studies on Finance Literacy in Woman Entrepreneurs

As many researchers concluded that most women face a hard time understanding basic finance-related concepts. Well, it can not be a major aspect in some cases where a dedicated financial management team is appointed.

But, the main problem that arises is a lack of proper understanding of fundamental concepts such as interest and inflation. Being a team leader, these inflation or interest are the major aspects to make any financial decisions either for resources or for productivity.

As per the results of the research around 61.0% of the women could answer the questions regarding these key concepts appropriately.

On the other hand, about 48% of the participants in this research understood the risks of investing and were able to answer all the questions regarding it. Risk diversification is also one such essential aspect to make the right decisions in a business environment

So, the current situation in the global trend points out why most of the businesses that are owned by women fail in the market due to low financial literacy.

Speaking about financial literacy, another study claims that more than 70% of women were unable to pass the financial literacy quiz and are 3 times more likely to fail in saving enough for retirement. Likewise, As per a worldwide survey conducted by S & P Global Fin Lit where 35% of men are financially illiterate compared to only 30% of women.

Although there are several reasons behind these disparities, less education accompanied by low-income background are taken as the major concerns.

Lack of Women Entrepreneur’s Financial Literacy and the obstacles are due to-

Mismanagement and poor financial decisions can lead to disaster for a business running the entire progress chart of the past. But, here are some challenging obstacles due to financial illiteracy, that one must know.

• Mismanagement capital as well as resources is one of the top consequences of financial illiteracy. Due to this, businesses often fail to meet the demands of the potential customers making them find another alternative. So, brand awareness and visibility of those businesses reduce faster than expectations.

• Women have more complications than men to lead a company with proper resource management as well as crafting proper marketing strategies. Time away from work due to birth rests and family care add-on to the lack of fundamental financial literacy leading to an increase of risks from all aspects. 

• Bad decisions in choosing financial products like insurance and investments become way more complicated for women than men although many studies conclude that women live longer than men. 

• Now that every business in the market needs to sustain high competition, the economic conditions are way volatile than ever. In such an unpredictable landscape, lack of proper knowledge on the financial term may often lead to business loss, legal conflicts, and sometimes may miss crucial opportunities. 

• Wrong choices due to lack of fundamentals in financial literacy may also lead to debt traps and signing fraud schemes regarding financial planning solutions or mortgage etc.

Companies that failed due to Financial Illiteracy-

Although studies conclude that women entrepreneurs are most likely to fail in business due to lack of financial literacy, there are many cases where financial illiteracy lead to disasters, Some of them include-

• Enron: It is a clear example of what happens if the leader is unaware of the fundamentals of financial aspects. The executives of this company were using the loopholes of the accounting and false error inspections and were managing to hide billions from projects. As a result, Enron ended up as one of the largest corporate bankruptcy that American has ever witnessed. The lack of a proper leader with good financial history is what lead to this disaster.

• Blockbuster: Blockbuster was one of the most popular companies for the latest video games or movie rentals. Well, the biggest mistake of this company was it employed over 80,000 people worldwide and opened around 10000 rental shops. The leaders failed in managing the financial resources and took the huge risk leading to bankruptcy due to over $900 million debt from Netflix. Netflix was a small company at that time.

• Toys R Us: One of the major and devastating consequences of Financial illiteracy is improper tax management. Toys R Us is a great example of this. It was also one of the most popular companies of its time. But, it failed to pay taxes on time heaping up to 15 million of unpaid taxes.

All these business disasters give great lessons about the consequences of financial literacy. This is why, proper awareness accompanied by concrete fundamental knowledge on every financial aspect is crucial, mainly for women entrepreneurs these days. This is high time that the Entrepreneurial Financial Journey of every woman with an ultimate business goal should start.

Fortunately, leading companies like the finance café are now marking appreciable success in educating the women entrepreneurs with not only fundamentals but also the risky aspects of financial management and business planning.