Financial Capability and Entrepreneurship: Promoting Economic Right of Low-Income Individuals

Overview: This study proposes a model to bridge individual and environmental factors of entrepreneurship among low-income individuals. It illustrates and assesses how this model may be specified with financial factors at the micro-level (financial literacy and skills) and those at the macro-level (financial access) to influence entrepreneurial cognition and action.Proposal text:

Background: Entrepreneurship refers to the dynamic process of identifying economic opportunities and acting upon them by developing, producing, and selling goods and services (Ahmad & Seymour, 2008). Entrepreneurship, in particular, small business entrepreneurship, constitutes an important strategy to protect economic rights and promote economic participation among low-income individuals (Audretsch, Keilbach, & Lehmann, 2006; Stam & van Stel, 2011, US Federal Reserve, 2019). For many poor individuals, entrepreneurship is appealing because it provides an avenue towards economic self-sufficiency and the American Dream (Cornwall, 1998; Laney, Bowles, & Hilliard, 2013; Sherraden, Sanders, & Sherraden, 2004). Social work educators can prepare students to support low-income families’ economic efforts on entrepreneurship.

Conceptual Model: Theories of entrepreneurship have been developed in a variety of disciplines, trying to understand why entrepreneurship is embraced by some people but not others. We propose a new framework that attempts to emphasize the financial aspect of entrepreneurship at both micro and macro levels. Financially capable entrepreneurs need both financial knowledge and skills and financial service access to achieve economic success in entrepreneurship (Sherraden, 2013). We argue that building financial capability—improving both financial knowledge and skills and financial service access—is key to creating a supportive ecosystem for successful entrepreneurship among low-income individuals. For low-income entrepreneurs, their financial success partly lies in access to effective financial capability services.

Methods and

Results: We use the 2016 National Financial Well-Being Survey (Consumer Financial Protection Bureau, 2017) to assess the financial capability of low-income entrepreneurs. Low-income entrepreneurs own fewer mainstream financial products and use more alternative financial products than low-income non-entrepreneurs and higher-income entrepreneurs do. Together, these results suggest that barriers to accessing financial services are greater for low-income entrepreneurs.

Conclusion: Low-income entrepreneurs encounter barriers to accessing mainstream financial products and use more alternative financial services. These factors may affect their financial well-being. The findings suggest the importance of financial capability for low-income entrepreneurs’ financial success. They also suggest the need for a comprehensive financial guidance system to promote financial capability as a path to successful entrepreneurship. Social work education should train future practitioners to improve the financial capability of low-income entrepreneurs.