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[Podcast] The Moderating Role of Financial Literacy on the Relationship Between Financial Behavior and Entrepreneurial Intention of Students

11 October, 2024

Keywords: Financial Literacy, Financial Behavior, Entrepreneurial Intention, Economics Students

In the context of the ever-changing global economy, entrepreneurship is increasingly becoming an important factor for economic development, especially for developing countries. Economics students, with their academic background and creative thinking, are often pioneers in starting a business. However, the entrepreneurial journey requires not only passion and creative ideas but also knowledge and skills in personal financial management. This raises the question of what role financial literacy plays in moderating the relationship between financial behavior and entrepreneurial intention. In this study, the author from University of Economics Ho Chi Minh City (UEH) outlined the crucial role of financial knowledge in moderating the relationship between financial behavior and business start-up intentions of students.

Recently, the impact of the Covid 19 pandemic has led to increased unemployment. Businesses have been laying off employees or restructuring to maintain their existence and development in response to new economic conditions. Therefore, young people face many difficulties in finding jobs and maintaining sufficient financial resources to cover their living expenses, especially those who have not had previous savings. Moreover, many new technologies are being promoted to support the rapid reconstruction of the economy – technology without requiring as many workers as before. Thanks to the access and the use of technology, young people have the opportunity to access knowledge and concepts of financial investment and financial freedom, which further motivates them to start a business towards achieving financial stability. In recent years, research on financial knowledge has received special attention from both researchers, practitioners, and policymakers. Every day, people make many different financial decisions to serve their lives, not only that, students are the ones who need to improve their financial knowledge and skills to stabilize personal financial activities. Personal financial management needs to be conducted earlier, when young people are aware of participating in financial investment, they can achieve their financial goals. However, financial investment is a difficult activity that requires more knowledge than just putting money into a savings account in the bank. When young people have a better understanding of financial management, it will be easier for them to develop future startup opportunities. Therefore, promoting startups can be affected and influenced by financial factors like financial management. With an unpredictable market like the Vietnamese market, improving financial knowledge is the first step to help investors minimize financial risks. Building a foundation of financial knowledge will allow individuals to identify more investment opportunities. Financial investment does not simply mean putting money in the bank or participating in investment in the stock market; in fact, it is all about using and managing finance to start a business. This financial knowledge can directly affect the investment intentions and methods of young investors.

Important Moderating Factors – Financial Knowledge and Attitude

First of all, financial knowledge refers to a system of basic financial concepts including diverse and distinct knowledge regarding finance, risk, monetary value, and basic theories of value. It is also an important factor to help students make wise decisions when starting a business. Understanding concepts listed as cash flow management, financial planning, risk management, and capital mobilization helps students deal with challenges in the process of operating a business.

Students with good financial knowledge will be more confident in making decisions related to costs, profits, and investments. They also easily recognize financial opportunities and seize them while avoiding financial mistakes that can lead to business failure. These students tend to have specific business plans and know how to build a solid financial foundation for their businesses. Financial knowledge is one of the important factors that determine a person’s attitude and behavior toward financial activities.

Financial attitude is an emotional state toward financial-related factors, measurement, perspective and evaluation of their surrounding environment. A financial attitude will influence and support that person in his or her behavior and response to financial activities, which can be influenced by knowledge, experience and family environment.

To improve this situation, it is necessary to strengthen financial education for economics students. Financial training programs should not only provide theoretical knowledge but also focus on practical skills listed as financial planning, cost management, and cash flow in the business. Providing finance courses or extracurricular programs will help students better understand the role of finance in the process of starting a business.

In addition, changing students’ financial attitudes is also an important part of promoting entrepreneurial intentions. Through career guidance programs, seminars or practical courses, students can realize the importance of financial management, forming a more positive attitude towards personal and business financial management.

The relationship between financial behavior and entrepreneurial intentions

Financial behavior is the way each individual manages their personal financial resources, including budgeting, saving, investing, and managing expenses. Positive financial behaviors will help individuals have a solid financial foundation, being more confident in implementing their business ideas. For economics students, financial behavior both refers to managing personal money and reflects the ability to manage future businesses.

A student with healthy financial behavior, understanding of how to balance spending, make financial plans, and save appropriately will be able to develop and maintain his or her business sustainably. On the contrary, students who lack financial skills will have difficulty maintaining cash flow, managing debt, or raising capital for the business, leading to failure in the startup process.

Entrepreneurial intention is defined as an individual’s preparation to start a business or the intention to build a plan and the process of starting a business. Students’ entrepreneurial intentions often originate from their learning and training at university/college. Moreover, students’ entrepreneurial intentions include the willingness to perform intended entrepreneurial behavior to stabilize and to improve their financial mastery.

Research indicates that positive financial behavior has a direct impact on entrepreneurial intentions. Students with a strong foundation in personal finance are more likely to start their own businesses because they believe they have the ability to manage a business and to achieve financial stability. However, the moderating factor in this relationship is financial literacy.

Policy implications of financial knowledge on the relationship between financial behavior and entrepreneurial intention of students

The results of the study show that financial knowledge has a strong influence on financial behavior and entrepreneurial intention. However, the study found that financial behavior has no influence on entrepreneurial intention. For today’s youth, financial behavior is factors listed as saving money and accumulating for oneself while entrepreneurial intention is a risky investment, accepting risks, and being ready to go bankrupt and financially unstable. However, when examining the relationship between all three factors, financial knowledge and financial behavior with entrepreneurial intention, it was found that: although the direct relationship between financial behavior and entrepreneurial intention was rejected, it was moderated by the financial knowledge factor. This means that when students have enough financial knowledge, it will promote their financial behavior, leading to entrepreneurial intention to stabilize their personal finances. Therefore, the study recommends that Universities in the field of business and economics should improve financial knowledge for students, including subjects in the field and short-term training activities, and organize forums and seminars to increase opportunities for students to access financial knowledge. Entrepreneurship subjects need to strengthen financial knowledge to increase students’ understanding, thereby promoting students’ entrepreneurial intention. Schools need to strengthen startup consulting centers and to invite financial consultants to these centers to support students with financial knowledge.

In addition, consulting and training students on capital mobilization and financial resources in the community is one important financial knowledge source to support students in starting a business. Even if they have the intention, in case they do not know how to mobilize capital, students’ ideas will not be able to be implemented. Schools can coordinate with startup support organizations listed as the national startup center and angel investors to provide capital for student startups. Students need to be equipped with more knowledge regarding corporate financial management to better manage capital.

Finally, from the perspective of policy makers and government programs, with the goal of promoting student startups, the government should have short-term training courses and promote startup orientation seminars for students. Not only that, the government should have capital support programs, invest in student startups or build financial courses to support students in better financial management.

The full-text article The Moderating Role of Financial Literacy on the Relationship Between Financial Behavior and Entrepreneurial Intention of Students can be accessed HERE.

Author: Dr. Do Thi Hai Ninh – University of Economics Ho Chi Minh City (UEH).

This article is part of the series spreading research and applied knowledge from UEH with the message “Research Contribution For All”. UEH respectfully invites readers to read the next UEH Research Insights issue.

News, photos: The Author, UEH Department of Communications and Partnerships