Effect of Financial Literacy on the Performance of Small and Medium Enterprises in Abuja FCT

Abstract

This study examines the effect of financial literacy, measured through financial knowledge, financial attitude and financial behaviour, on SME performance in the Federal Capital Territory (FCT). A cross-sectional survey design was adopted using primary data collected in 2025. The sampling frame was the 38,003 FCT SMEs registered with the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN, 2021 survey report). A sample of 396 was determined using Yamane’s (1967) formula at a 5% margin of error, and respondents were selected by simple random sampling from this frame. Data were collected from SME owners and managers using a self-administered, structured questionnaire of 20 items on a five-point Likert scale (five each for financial knowledge, attitude, behaviour and SME performance), adapted from Bamidele et al. (2024) and Okafor et al. (2024). Of 396 questionnaires distributed, 357 were returned, a response rate of 90.15%. Data were analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM) in SmartPLS 3, and the measurement model showed satisfactory reliability and validity. The three predictors jointly explained 65% of the variance in SME performance (R² = 0.65; adjusted R² = 0.64), and the blindfolding result (Q² = 0.52) indicated strong predictive relevance. Financial knowledge had a positive but statistically insignificant effect (β = 0.127, t = 1.582, p = 0.114). Financial behaviour had a positive and significant effect (β = 0.345, t = 3.721, p < 0.001). Financial attitude had a negative and significant effect (β = −0.278, t = −2.967, p = 0.003), a counter-intuitive result discussed in light of possible overconfidence and excessive risk-taking. The findings suggest that how owners apply financial knowledge matters more than the knowledge itself. The study recommends practical workshops, mentorship and behaviour-focused financial management support for SMEs in Abuja FCT.