Financial Literacy and Saving Behavior Among Micro and Small Enterprise Owners in Kampala, Uganda: the Moderating Role of Social Influence

Abstract

Savings behavior is particularly critical for owners of micro and small enterprises that have minimal access to credit and yet play a crucial role in both production and employment. This is clear, since they can start small investment over time. This is possible only when saving is planned and embraced. Nevertheless, the individual management of their money will influence the sustainability of these micro and small enterprises. This is especially true in Uganda for individuals in Sub-Saharan Africa (SSA), where 3/5 small enterprises are collapsing due to their poor saving behavior, which is compounded by the lack of access to credit. The capacity for one to manage money effectively requires cautiousness in expenditure decisions in saving money hence assisting them to improve and be able to sustain their businesses. Using cross-sectional data from 395 micro and small enterprise owners from Kampala, Uganda, this study, examines the moderating effect of social influence on the relationship between financial literacy and saving behavior among micro and small enterprise owners in Kampala, Uganda. Process macro is used as a statistical tool to analyze the data collected by the use of a questionnaire. The study was guided by both the social cognitive and social capital theories. Results indicate that both financial literacy and social influence significantly predict saving behavior. Besides, the relationship between financial literacy and saving behavior is moderated by social influence. The results further indicate that much as social capital is a necessity, too much of it may dilute relationship between financial literacy and savings behavior. These results bring additional insights to both research and theory.