Humanities & Social Sciences Reviews eISSN: 2395-6518, Vol 7, No 2, 2019, pp 376-383 https://doi.org/10.18510/hssr.2019.7244 376 |www.hssr.in © Thabet et al. FINANCIAL LITERACY AMONG SME’S IN MALAYSIA Omer Bin Thabet 1 , Atiqah Abd Manaf. Fazlin Ali 2 , Mazhar Kantakji 3 1 Universiti Kuala Lumpur, business school, 2 Universiti Putra Malaysia, Faculty of Agriculture 3 Universiti Kuala Lumpur, business school. obt250@gmail.com Article History: Received on 15 th February 2019, Revised on 24 th March 2019, Published on 20 th July 2019 Abstract Purpose of Study: The objective of this study is to investigate the financial literacy among the SMEs in food and beverage sectors in Malaysia. Methodology: Small and Medium Enterprises (SMEs) play an important role in countries’ economic growth. However, the failure rate among SMEs getting higher. The literature stipulated that the lack of financial literacy is one of the main reasons caused this failure. Results: The results of 122 returned questionnaires shows that the socio-demographic factors such as age and marital status have influenced SME’s financial literacy. Moreover, the financial attitude and financial behavior found to be positively related to the financial literacy among the SMEs. Keywords: Financial literacy, SME, Malaysia, business failure INTRODUCTION Recently, financial literacy received considerable attention on not only business level but individual and government levels. This is because the financial illiteracy will lead to individual and business failure especially with incessant incidents of global financial crisis that imply the risk that people and business across the world facing. Financial Literacy enables individuals and business to comprehend the use and purposes of money and take wise financial decisions According to Van Rooij et al. (2011) literacy is one of the major determinants of the success or failure of the business. Similarly, Greenspan (2002) suggested that the financial literacy will help an individual know more how to manage their personal financial, financial planning and know how to make strategic investment decisions for their long-term savings. For small and medium enterprises (SME’s), the failure rate is too high in their first five years in many different countries. For instance, In Uni ted State (US), a new business had a 48.4 % chance of surviving five years (Business Employment Dynamics, Bureau of Labor Statistics, 2013). Similarly, in Australia the SMEs reported failure rate of 23% (Watson, 2003). The main reason for this failure is the lack of these SME’s financial literacy (OECD, 2013). In Malaysia, according to the Department of Statistic Malaysia (2017), the total number of SMEs establish in Malaysia were 907,065 units in 2016 with 37.1% contribution to Malaysian GDP and providing 66% of total employment in the country. However, Ming-Yen et al. (2013) stated that the failure rate among Malaysian SME’s was increased lately. Therefore, this paper tries to address the current level of the main reasons caused this failure found in the literature (financial literacy) among SMEs in Malaysia. LITERATURE REVIEW Financial Literacy Financial literacy plays a critical role in helping individual or entrepreneur to manage their money wisely. According to Financial Corps (2014), the term financial literacy was first introduced in the USA in 1787 when John Adams wrote to Thomas Jefferson about the rising financial distress in America. He said in the letter, this distress and confusion mainly caused by the ignorance of financial matters among the people of America. Lusardi (2008) and Lusardi and Olivia (2011a) defined financial literacy as the knowledge of basic financial concepts and ability to do simple calculations on a more advanced definition. Organization for Economic Cooperation and Development (OECD) combined both definitions earlier and refers financial literacy as knowledge and understanding of financial concepts and risks, and the skills, motivation and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life (OECD, 2014). In other words, the above definition focused on three basic dimensions of financial literacy which are financial knowledge, financial behavior and financial attitude. In line with Agarwalla et al. (2013) and Potrich et al. (2015) this paper adopted the definition proposed by OECD. Financial Behavior Financial behavior is the way in which a person behaves with regards to the financial matters that may influence his financial well-being. This includes measures on a person’s money management practice, saving behavior as well as financial participation (OECD, 2013). According to research, individuals with high financial behavior are more likely to participate in stock market and formal financial markets for investment (Klapper and Panos, 2011; Jennifer and Chi, 2018) pay bills on time, anxiously evaluate financial products, prefer savings than borrowings in crisis time, self-assess the affordability of products (Atkinson and