1. Information about financial literacy 2. Importance of financial literacy
3. Which skills (characteristics) entrepreneurs must have in order to
succeed; the impact of financial literacy on the development of
entrepreneurship 4. The impact of financial illiteracy on the development of
entrepreneurship in Azerbaijan 5. Programs that applied by developed
countries to increase the level of financial literacy 6. The ways to
eliminate financial illiteracy in Azerbaijan (Financial programs, information
seminars, websites, financial weeks) and information about the “ANFES”-
Azerbaijan Ministry of Economic National Fund For Entrepreneurship Support
Main Body Paragraph 1-Information about financial literacy Financial literacy
(In USA financial literacy is also called financial capability) incorporates
information about the financial areas (time value of money, investment
choices, knowledge about the compounding interest rate, an ability to
understand “how to use money” in order to maximize profit and etc.). An
ability to use financial information in an effective or efficient way can be
also included in financial literacy. If the level of financial literacy is
high in the country, it means that people have enough knowledge and skills
about personal finance – Most of the population are able to use their
knowledge to create effective financial plans and make effective financial
decisions .Following chart shows the relationship between Financial Literacy,
Financial knowledge and Personal Financial Behavior: Education about Personal
Finance —– Financial Literacy —– Personal Finance (it includes
Financial Literacy tests and grades of financial education) —– Personal
Finance Behavior (financial knowledge of the family, economic-financial condition
of a country) There are two crucial measurements of financial literacy: 1)
Financial education of people (for example, risk-management, tax breaks,
understanding financial statements and financial ratios) which is called
“Knowledge measurement” 2) An ability to use financial knowledge (maximizing
tax breaks, making effective financial decisions and etc. ) which is called
“Application measurement” 2-Importance of financial literacy in Azerbaijan:
People (especially entrepreneurs) must have financial knowledge because: 1
-to recognize business and individual finances; 2 -to comprehend the basic
leadership procedure of finance providers, and accordingly acknowledge how
the business can become creditworthy; 3 -to be a competent purchaser of
financial services (budgetary administrations) – understanding money related
items, their costs and risks; 4 -to practice financial administration – i.e.
to utilize financial data to examine business performance and make
arrangements and controls that enhance this; 5 -to predict the business’
future budgetary needs under alternative scenarios; 6-to determine the risks
7 -to relate the business’ money related requirements to a nation’s
administrative and fiscal structure – to welcome the thoughts of regulatory
efficiency and etc. 3 -Which skills (characteristics) entrepreneurs must have
in order to succeed and the impact of financial literacy on the development
of entrepreneurship: Entrepreneurs must have solid knowledge about the
risk-management, finance, cash-flow statement and budgeting. Besides
financial knowledge, entrepreneurs must also have conceptual (An ability of a
person to see a company as a whole – Person must know the internal
environment within the company and external environment) and diagnostic
skills (An ability of a person to analyze everything in detail). In volatile
economic environment entrepreneurs must know risk-management in order to get
highest return and avoid from high level of risk. They have to calculate
inflation rates regularly. It would be better to know break-even analysis in
order to run their business more effectively. People who want to start a new
business (especially entrepreneurs) must have strong business plan, solid
management skills, enough capital and enough knowledge about risk-management,
finance and economics. High level of financial literacy help businesses to
progress even in volatile economic environment. Proper knowledge about the
risk-management, financial economics, financial literacy tools and making an
effective financial plan help business owner (or entrepreneur) to remain
unaffected by business downturns. Financial knowledge will help small
entrepreneurs to improve their long-term investment. A financially educated
entrepreneur will probably be completely responsible for his/her business.
Picking up a comprehension of what balance sheets (accounting reports) and
profit & loss statements mean gives a reasonable perspective of the
monetary condition of your enterprise and in this way it encourages more
effective business choices. But still, picking up a level of financial
astuteness implies that, you will have the capacity to deal with a portion of
the business’ finances, and in the process give yourself the most obvious
opportunity with regards to building a business that can flourish. Access to
credit lines is a key factor during the time spent extension for little
endeavors. The capacity to scale a business in a reasonable and profitable
way requires financial knowledge. Financial knowledge will also improve your
relations with the expert whose activity is to guarantee the integrity of
your business’ records. 4-The impact of financial illiteracy on the
development of entrepreneurship in Azerbaijan Financial illiteracy has a
negative impact on the development of small entrepreneurship. Because, if
entrepreneur doesn’t have enough knowledge about finance and risk-management
they won’t be able to operate or improve their business, company’s “Going to
concern” principle will be under the risk – It means that company won’t be
able to operate in the future (especially during the volatile situations)
Impact of financial literacy affects positively on the development of
entrepreneurship, because: 1) Know your (and your family’s) resistance for
financial risk – Experienced entrepreneurs realize that during the startup
stage and past, the proprietor is the last one to be paid. There are so many
rewards and challenges of being an entrepreneur. Economic downturns
(Depression, Inflation, Stagflation and etc.), volatile environment, change
in tastes can make business achievement a not exactly ensured recommendation.
Entrepreneur must have enough financial capacity with respect to an abnormal
state of vulnerability. 2) See how much amount of money it takes to begin a
business-entrepreneur must also have enough capital to start a business.
Sometimes entrepreneurs underestimate business expenses and costs,
overestimate the revenue (or profits).If entrepreneur doesn’t know how much
money it takes to begin a business, and it can cause some losses. 3) Realize
when it bodes well to use business credit-Business credits help businesses to
develop. These business credits can be used for two purposes: Reducing costs,
increasing revenue 4) Learn how to use financial statements. Based on the
financial statement, financial ratios can be calculated and as a result,
entrepreneur can know the strengths and weaknesses of a company. 5)
Comprehend the connection between entrepreneurs’ business credits and business
loaning 6) Understand how the Cash inflows and cash outflows affect business:
Main aspects of the cash flows are account payables, receivables, inventory
turnover Since the 2007-2009 downturn in the United States economy, President
Obama has swung to independent company to help the financial recuperation,
calling independent company “the foundation of the American
Economy” (The White House Blog 2010). Entrepreneurs contributed 46% of
the GDP, provided 49.2% of private segment work, and made up 99.7% of U.S.
business firms. Certainly, entrepreneurs were significant to the country’s
monetary recuperation and achievement. Therefore, there have been expanded
entrepreneurs with respect to government offices, for example, the SBA and
SBDCs to develop the quantities of successful independent companies. The
reality remains however that there is a high disappointment rate of private
ventures. Different sources, including the U.S Census Bureau4 Shane (2012),
and the Bureau of Labor Statistics, over the previous four decades have
referred to the disappointment rate of independent ventures to be as high as
half amid the initial five years of operations. As a result, we can say that
entrepreneurs play crucial role in economic development of a country. 5-
Programs that applied by developed countries to increase the level of
financial literacy Most of the OECD (The Organization for Economic
Co-operation and Development) countries use Financial Education Programmes to
increase the level of financial literacy. Even Turkey some Banks organize
such kind of programs in order to improve the level of financial literacy.
According to the “Pisa scoring system”, countries like USA and China have the
lowest level of financial illiteracy. Especially OECD countries have high
level financial literacy .USA organized some special programs to increase the
financial literacy of small business owners and entrepreneurs. China, United
Kingdom, Ireland, Australia, Canada organized such type of
financial-educational programs to increase financial literacy and help small
business owners and entrepreneurs to improve their business. Azerbaijan can
apply some methods that are used by the countries which have lowest level of
financial illiteracy. For Example, special program that created by USA –
Small Business Development Centers (SECDs) is the most effective source for
the small business owners and entrepreneurs. SECD and Small Business Owners
Administration Program provides small business owners and entrepreneurs with
the training, consolation and the technical helps .In USA people also can use
online financial literacy tools in order to improve their financial
knowledge. USA also has provided entrepreneurs and small business owners with
the online financial literacy tools. SECD and SAB also organize workshops for
the entrepreneurs in order to improve the knowledge and skills of small
entrepreneurs. There is another program in USA that is called “Rise Money
Smart “for small business owners. This program helps to improve the financial
planning and cash flow management skills of small business owners. Score
Association Program is organized for only helping the entrepreneurs.
Azerbaijan can also establish this kind of organization to help the
entrepreneurs. And this organization can create a website for
entrepreneurs-by using online website entrepreneur will have an access to use
online financial tools and financial materials (documents books, notes and
etc.) In USA, there is a website which is called “360 Degrees of Financial
Literacy for Small Business Owners”. This website offers instructive
materials and financial devices. Small business owners and entrepreneurs can
get information about financial budgeting, debt and break-even analysis and
trend analysis. These types of programs also applied in Ireland (which is
called “Money Matters”) and Denmark (which is called “Funny Money”) Spain and
Portugal are trying to improve the level of financial literacy by creating
websites for informing small entrepreneurs about personal finance. As we see,
both developed and developing countries, Banks create websites in order to
improve the development of small entrepreneurs. 6 -The ways to eliminate
financial illiteracy in Azerbaijan (Financial programs, information seminars,
websites, financial weeks) and information about the “ANFES”- Azerbaijan
Ministry of Economic National Fund For Entrepreneurship Support Central Bank
of Azerbaijan can create a website like SME-toolkit. It’s specially created
for small entrepreneurs and women entrepreneurs. This website have nine main
sections: Accounting and Finance, Human Resources (HR), Business Planning,
Sales and Marketing, Operations and finally, E-learning. I think that
creating such kind of website will help to entrepreneurs to improve the level
of financial literacy of entrepreneurs in Azerbaijan. Creating website is
also one of the best cost-effective ways. Countries which have high level of
financial literacy In order to eliminate the high level of financial
illiteracy in Azerbaijan, government must organize special financial
education, training programs, create a website which is aimed to help people
increase their knowledge about finance. Financial subject must be taught in
colleges or universities. Advocates of financial literacy say that financial
subjects must be taught in high school. But according to the scientists, high
school students don’t have enough ability to understand finance in details.
In colleges or universities students will be able to understand finance
better. Turkey students have financial literacy class. In Azerbaijan
financial literacy classes can also be organized by TQDK in order to expand
students’ knowledge about financial capability it will also help to the
students who want to become an entrepreneurs in the future. Even some
companies can organize trainings and educational campaigns. Some governments
open financial museums to stimulate people to learn about personal finance.
Some government organizations in Azerbaijan can also organize financial weeks
in order to inform people (especially who want to become entrepreneurs) about
personal finance. Information sessions can be also one of the most crucial
ways to encourage people to get knowledge about finance and basic economics.
Place, time and day of the information sessions must be organized in
accordance with people’s needs. For example, most of the entrepreneurs may
not have enough time during the weekdays. Government institution which
organizes information sessions (or seminars) must pay attention to the place
of seminar. It would be better to organize information seminars in financial
institutions banks. Advertising can play an important role for increasing the
attendance of entrepreneurs in these seminars through radios, magazines,
journals, TV Programmes and etc. Azerbaijan has created a fund for the
entrepreneurs which is called “ANFES”- The Republic of Azerbaijan Ministry of
Economic National Fund For Entrepreneurship Support (in Azerbaijani language
it is called “SKMF”). The entrepreneurs can get concessionary credits from
National Fund for Entrepreneurship Support of the Republic of Azerbaijan.The
fund has also created a very useful website in which young entrepreneurs can
easily get the information about concessional loan mechanism, model
investment project and etc. If the entrepreneurs want to get concessionary
credits, they have to apply to “ACEs” (which means authorized credit
entities) • An amount of the concessionary credits can be ranging from 5
000manats to 50 000 manats • An amount of medium-sized credits can be ranging
from 50 001 manats to 500 000 manats • An amount of small-sized credits can
be ranging from 500 001 manats to 10 000 000 manats Conclusion Financial
illiteracy has a negative impact on the development of entrepreneurship in
Azerbaijan. Financial literate entrepreneur can increase the profitability of
his/her business. Having knowledge about personal finance allows the
entrepreneurs to get some information about the profitability and liquidity,
efficiency of their company based on the financial ratios. Countries in which
have high level of financial literacy use different programs in order to
improve financial literacy among people. Financially illiterate entrepreneur
won’t be able to improve his/her business in long-time period. Especially,
during the volatile situations, fluctuating economic trends can make business
achievement a less-than-guaranteed proposition. Azerbaijan has also created
“ANFES”- The Republic of Azerbaijan Ministry of Economic National Fund For
Entrepreneurship Support for helping the entrepreneurs. As a result of essay,
I concluded that concrete options for eliminating the financial illiteracy in
Azerbaijan can be: 1) Financial-Educational Programs ; 2) Creating Websites like
SME-Toolkit; 3) Organizing Financial Weeks; 4) Starting teaching people about
personal finance (or financial subjects) from high school ; 5) Information
Seminars for the people who want to open a new business and run their own
company ; 6) Workshops for the entrepreneurs; 7) Subject-Financial Literacy;
8) Organizing program like “Rise Money Smart” ; 9) Online Financial Literacy
tools ; 10) Start teaching students financial subjects and improve their
ability to use financial knowledge.


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