Effect of Financial Literacy of Owner-Managers on Financial Risk Management among Small and Medium Enterprises in Nakuru County, KenyaCounty, Kenya

Abstract

This study examined the effect of financial skills, as a dimension of financial literacy, on financial risk management among SMEs in Nakuru County, Kenya. Drawing on the principles of Human Capital Theory and Financial Capability Theory, the research employed a survey-based design guided by a predictive correlational approach. The Nassiuma (2000) formula was used to obtain a sample of 100 SMEs, selected from a target population of 336,661 SMEs across the county’s eleven sub-counties, as per the county’s enterprise register as at December 2025. Data were collected using structured questionnaires, and 85 valid responses were analysed using descriptive statistics, Pearson correlation and multiple linear regression. The findings revealed that respondents applied financial skills to a small to moderate extent (M = 2.59, SD = 1.18), with weaknesses in financial statement interpretation, contingency planning and cash flow analysis. Financial skills demonstrated a strong, positive and statistically significant relationship with financial risk management (r = 0.784, p < 0.01) and a significant positive predictive effect (B = 0.485, β = 0.452, p < 0.001), controlling for financial awareness and financial attitudes. The regression model explained 70.9% of the variation in financial risk management (R² = 0.709). Financial skills made the largest relative contribution among the three financial literacy dimensions examined. The study concludes that practical financial skills are important predictors of financial risk management among SMEs in Nakuru County. It recommends targeted, practice-oriented financial education focused on budgeting, cash flow analysis, financial statement interpretation, credit assessment, and contingency planning to strengthen SMEs’ capacity to identify, assess, and manage financial risks.