The generational divide of financial literacy in small business owners
A message from: Xero
You've heard it before. Financial literacy is a must-have in and out of business.
Okay, but: A recent Xero survey of 1,201 self-employed small business owners across the U.S. proves just how critical it is to starting and maintaining a successful business — especially for younger generations.
📈 Key numbers
50% of small business owners surveyed by the global small business platform said they actively face fiscal challenges in their business without enough knowledge on financial literacy concepts.
- 15% of those respondents are still recovering from the pitfalls.
The deets: Business owners in the survey struggled with financial literacy skills across the spectrum, including…
- Optimizing tax strategies (18%).
- Implementing and sticking to budgets (16%).
- Interpreting financial metrics (16%).
- Implementing cash flow management (16%).
And while 55% of small business owners rated their financial literacy as 'high', not even half (38%) have a reserve fund for emergencies.
- 13% don't have a plan for unexpected expenses at all.
Why it's important: 39% of small business owners choose to handle their finances independently, leaving them without valuable insights from financial advisors who can provide expert advice on tax optimization, budgeting, cash flow management and effectively overcoming challenges.
- With only 16% of respondents actively using an accountant or advisor, far too many owners miss the opportunity for continued growth and business resilience.
The proof: Xero data reveals that 60% of small business owners reported frequent or occasional cash flow issues since starting their business.
👉 Here's what else: The generational divide
The rate of business owners struggling with financial literacy is more pronounced for younger generations.
- 60% of Gen Z and 59% of Millennials reported having financial challenges because of limited financial literacy, whereas only 22% of Boomers reported the same issue.
- Compared to only 5% of Boomers, 23% of Gen Z business owners don't have an emergency financial backup plan.
- Younger generations even face more doubt and fears of failure: 66% of Gen Z compared to 29% of Boomers.
Plus, plus, plus: Many small businesses begin as side gigs, an increasing trend with newer generations.
- 67% of Gen Z and 69% of Millennials reported starting their businesses as side gigs, compared to less than half of Boomers.
But transitioning from a side gig to full-time entrepreneurship can be daunting, especially when personal savings are on the line — like the 61% of small business owners across all generations who said they used their own funds to get started.
What you need to know: "Financial literacy is vital for the health and growth of small businesses, as it empowers owners to make informed decisions and navigate complex external and internal landscapes," said Ben Richmond, Managing Director, North America at Xero.
In other words: Working with accountants and advisors improves everything about running a small business, from financial decision-making to growing your customer base — which 54% of respondents struggle with.