Personal finances : what is the possible impact on entrepreneurial activity in South Africa?

Abstract

South Africa has the lowest level of entrepreneurial activity of all developing countries surveyed by Global Entrepreneurship Monitor in 2005. A possible explanation could be the low levels of savings in South Africa, as personal capital is the main source of funding when starting a new business. The inverse relationship between debt and savings denotes that the more individuals spend on debt, the less they will save. Financial illiteracy has been found to contribute to the mismanagement of personal finances. The purpose of this study is to ascertain the percentage of disposable income spent on debt, and to examine certain behaviours that influence personal debt and savings, as well as the possible reasons that individuals are not saving. All the students enrolled at the University of the Free State School of Management during 2005 took part in the study. Financial literacy is a necessity for entrepreneurial advancement in South Africa, and the high levels of debt, and subsequent low levels of savings, could restrain the development of entrepreneurial activity in South Africa.

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