The financial literacy of Canadian entrepreneurs
We often assume that being an entrepreneur means being comfortable with financial matters. But is that really the case?
Our January 2024 research report, Entrepreneurs and Financial Literacy: the Situation in Canada, shows that the financial knowledge of Canadian entrepreneurs is actually fairly good. That being said, there are certain things that business owners would do well to better understand.
We conducted an online survey with 634 Canadian business owners and decision-makers to discover their level of financial skills and knowledge and compared it to another study we carried out in 2017.
Financial literacy has improved over the last six years
In general, entrepreneurs answered our financial literacy test questions knowledgeably.
The result was that 83% of respondents answered at least 7 questions out of 10 correctly. That percentage is significantly higher than in 2017, when 78% of respondents answered at least seven questions correctly.
This is a step in the right direction. In 2023, we sought to identify what skills were needed to succeed in business and found that financial skills were among the most important for business owners, especially at the start-up and growth stages.
Paradoxically, perceived knowledge levels are declining
Although the measured financial knowledge of entrepreneurs has increased, their confidence in their knowledge has decreased.
While 68% felt they were knowledgeable or very knowledgeable in 2017, only 63% responded the same way in 2023, a significant decrease.
How would you rate yourself on your level of financial knowledge?
One question that still poses a problem
In our survey, the question on bond pricing was the one that gave business owners the most trouble. The question was: “If interest rates rise, what will typically happen to bond prices?”.
Respondents were asked to choose whether prices would rise, fall, or stay the same.
Fewer than half got the answer right (prices will fall). However, this still represents an encouraging 9-point increase in the percentage of correct answers compared to the last survey (49% vs. 40%).
More people say they enjoy dealing with financial matters
There was a statistically significant increase in the percentage of business owners who say they enjoy dealing with financial matters.
Over 4 out of 5 entrepreneurs surveyed (77%) say they enjoy dealing with them. In 2017, that percentage was 68%.
Their confidence in their financial management skills, in fact, mirrored the same trend. There was a 5 percentage points, from 70% to 75%, for people who felt confident or very confident about their skills.
Time allocated to financial management was down quite sharply. Business owners allocate 20% of their time to managing their finances. It was previously 30% of their time. Our assumption is that business owners have had less time for financial matters, partly because of the challenges they faced in recent years, such as the pandemic, labour shortages and supply chain difficulties.
Do you enjoy dealing with financial matters?
Willingness to take risks varies
Willingness to take risks has increased overall. However, fewer of the entrepreneurs surveyed felt very willing to take risks regarding their personal financial investments.
On a scale from 0 to 10, where 0 means that you are not at all willing and 10 means that you are very willing, how willing are you to take risks regarding your personal financial investments?
The relationship with professionals is stable
The relationship with business professionals for financial or accounting advice is stable.
Almost two thirds of those surveyed consult professionals before making an important financial decision (65%) or tend to trust them and accept their recommendations (63%).
Managing debt obligations has seen the biggest increase in the use of professional services, with 38% of business owners having sought advice in that regard versus 28% in October 2017.
Consulting professionals in other areas remains quite similar.
Company credit records are perceived as having improved
Good news: Over half (55%) of business owners rate their firm’s credit record as very good, which is a 12-percentage-point increase over the last report (43%) six years ago.
However, the trend is not as positive when it comes to checking their credit history. Surprisingly perhaps, 47% have never asked a credit agency for a credit report for their business, which is a slight decrease versus 2017 (52%).
Significant differences still need to be addressed
Women and small business owners are trailing the pack.
1. Gender differences
Women scored lower on the quiz than men, with an average score of 7.5 for women and 7.9 for men. While statistically significant, the difference has narrowed somewhat since the last survey.
Women also consider themselves less knowledgeable, feel less confident and are less willing to take risks.
| 54% | of women consider themselves as knowledgeable regarding financial matters (vs. 66% men, significant) |
| 63% | of women are confident with their financial management skills (vs. 78% men, significant) |
| 47% | of women are willing to take risks regarding their personal financial investments (vs. 65% men, significant) |
These differences remain significant versus the results for men.
2. Differences for members of diversity groups
Our report underscored that there were no differences in terms of knowledge of and enjoyment of dealing with financial matters between diverse- and non-diverse owned SMEs.
However, we did see differences when it comes to:
- Willingness to take risks
- Confidence in one’s own financial skills
| 55% | of diverse-owned SMEs say they are willing to take risks regarding their personal financial investments* (vs. 67%, non-diverse) |
| 66% | of immigrant-owned SMEs are confident with their financial management skills (significantly lower than the rest of the sample) |
In Canada, borrowing money to gain leverage and achieve stronger growth is one of the tools that business owners need to learn about.
In other parts of the world, however, debt can be viewed less favourably. Consequently, some immigrant business owners may be less likely to take risks, at least during their first few years in the country.
This could also be because the rules governing tax, finance, and business management may differ from one country to another.
3. Differences in business size
Attitudes towards risk-taking follow a similar trend when comparing small businesses to larger ones.
The smaller the company, the closer the behaviour of business owners is to that of the general public. Their risk tolerance is lower and the way they manage their finances is closer to what the general population does.
A question of confidence
A good way to address these differences is by building up the confidence of entrepreneurs.
Lower self-confidence can lead to doubts about our ability to make the right decisions. It impacts the willingness to push harder and to take a bit more risk, which can be an obstacle to business growth.
encouraging business owners to take a bit more risk could help turn the tide. One way to do this would be to provide more women role models in various fields, including the financial sector. To this day, the financial sector remains a male-dominated environment, whether you look at big investment firms or financial institutions.
There is this perception that women entrepreneurs have less access to financing. However, our data show that women tend to wait until a project is quite advanced in the planning stage before applying for financing, owing to their lack of confidence. The upside to this, however, is that their acceptance rates are higher.
Being in business doesn’t necessarily equate being financially literate
We often assume that business owners have solid financial knowledge. However, they don’t necessarily know more about finance than anyone else working in any other field.
That false impression can create pressure on business owners. Some are embarrassed about not knowing how to properly manage their finances. They can be tempted to try to avoid dealing with finances or even just delegate that function altogether. One solution to that is to offer self-paced online tools that make it easy to build financial literacy without embarrassment.
Many entrepreneurs who start their own business are passionate specialists in a particular field that often has very little—if anything—to do with finance. In the past, we have asked business owners what area they felt they most needed help with. More often than not, it was in accounting or finance, which says a lot!
In fact, finance has often been reported as being one of the least enjoyable aspects of managing a business. The increase in the percentage of entrepreneurs who say they actually enjoy dealing with financial matters is good news.
Next steps
How does your financial literacy compare to that of other business owners? To find out, complete our quiz to answer the same 10 questions we asked business owners in our report.