The Effect of Banking Literacy on Startup Financial Management of Budgeting, debt, cash flow and Investment decisions

Abstract

The aim of this study was to investigate The Effect of Banking Literacy on Startup Financial Management of Budgeting, debt, cash flow and Investment decisions of registered startups operating in Addis Ababa, that have established banking relationships with the Commercial Bank of Ethiopia (CBE). This includes startups that have opened specified business accounts under the head office. The study used explanatory and descriptive research design with quantitative approach. The target population for this study includes founders, financial managers, and owners of legally registered startups in Addis Ababa that have established business accounts, with in the Commercial Bank of Ethiopia (CBE) under the head office. These startups opened these specified business accounts for essential financial services, such as access to credit and business loans. They operate across various sectors, including Technology, Services, Manufacturing, and Agriculture. From a total population of 816 registered startups, a sample of 268 was selected using stratified sampling techniques, followed by convenience sampling to choose respondents from each stratum. A fivepoint Likert scale to measure variables such as banking literacy, entrepreneurial education, financial planning skills, mentorship, and risk tolerance. Statistical analysis, conducted using SPSS (version 25), revealed a significant positive relationship between banking literacy and startup financial management, with banking literacy emerging as the most influential variable, followed by financial planning skills and access to financial services. The regression model explained 62.2% of the variance in startup financial management, underscoring the importance of banking literacy in improving budgeting, cash flow management, and investment decisionmaking. The study advocates for initiatives to enhance banking literacy, alongside improved access to financial services and mentorship programs, to strengthen financial management in startups.