Introduction

Some social current trends consider that financial literacy can be a form of “general human capital”, as is education or professional experience (Preston & Wright, 2019). Nowadays, due to the multidimensional nature of this competence, it is presented with a multidisciplinary vision, since it affects a wide range of financial behaviors (Hanson & Olson, 2018).

Micro, small, and medium-sized enterprises (MSMEs) constitute the majority of enterprises in the world and contribute to the employment and economic development of countries as well as to the improvement of financial stability (Kurochkina et al., 2019). As a consequence of the mass layoffs and high levels of unemployment caused by the 2008 recession, there has been an increase in the number of self-employed workers – a circumstance that has also been favored by technological development(Struckell et al., 2022) Additionally, in this context, there is a growing trend towards self-employment (Henley, 2021; Spasova et al., 2019). Empirical results show that financial literacy has significantly positive effects on both business participation and business performance (Li & Qian, 2020).

The main reason why most businesses fail stems from financial problems and this is no different when the owner is a sole proprietor (Ćumurović & Hyll, 2019). MSMEs often face many daily challenges such as regulatory barriers, tax burdens, and difficulties in accessing finance (Atkinson, 2017). The current environment, characterized by a great diversity of consumption and investment options, is pushing these companies to seek strategies that drive the development of competitive advantages to generate added value from the products and services they provide, with the aim of achieving economic and financial profitability (Acuña et al., 2022). Therefore, the skills required by a self-employed person are broader than those required by an employee (Struckell et al., 2022). Among the specific challenges that entrepreneurs face is the need to combine different skills and competencies in a single person to correctly manage their daily activities today.

In this context, it is vital for the self-employed to possess skills and knowledge that contribute to informed financial decision-making, and thus ensure the survival and growth of the enterprise. In the face of unforeseen crises, a lack of these skills may lead to undesirable consequences for both the self-employed and their employees. One of the main causes of small business failure is poor financial decisions that freelancers make. In the United States, just over 20% of the self-employed admit that poor financial decisions are attributed to using short-term payday loans or check cashing services and that these practices could lead to business failure (Nitani et al., 2020a). It is, therefore, essential to recognize the barriers that impede the economic resilience of self-employed professionals in the current financial and health crisis (Mindes & Lewin, 2021). The successful development and growth of MSMEs depend on both supply-side and demand-side factors, including the availability of appropriate financial knowledge and skills (OECD, 2015)Footnote 1. The OECD launched in 2021 the OECD/INFE Survey Instrument for Measuring Financial Literacy of MSMEsFootnote 2, with the purpose of measuring the financial literacy of owners and managers of this type of enterprises in a harmonized way in different countries.

Despite the agreement that financial education is very helpful in achieving financial well-being, the link between entrepreneurship and financial education remains under-researched in the literature. The analysis of financial literacy from a business perspective is an emerging field (Fernández-López et al., 2023) and fundamental to assess whether individual or self-employed entrepreneurs have the necessary knowledge to make complex financial decisions(García-Pérez-de-Lema et al., 2021).Our study represents an advance in the understanding of the relationship between financial education, self-employment, and related factors.

The main aim of this paper is to analyze the link between individual entrepreneurs or self-employed workers – with or without employees – and financial literacy. In addition, we investigated the relationship between this group in Spain with their socio-demographic characteristics, financial product holdings, financial planning, and financial fragility. Consideration of these variables favors the robustness and reliability of the obtained results and makes it possible to examine those aspects that influence the Spanish self-employed through the data provided by the Survey of Financial Competences. Therefore, this paper complements previous findings in the literature using this same survey and extends them by evaluating the relationship between the analyzed variables and self-employment.

In relation to the importance of academic input in the study of this self-employed workforce, we set out the following research hypotheses:

H1: Self-employed people are more financially literate than employees.

H2: There are significant differences in the levels of financial literacy between sole proprietors or self-employed who have employees and those who do not.

H3: Socio-demographic characteristics and financial product portfolios help to explain the consideration of being self-employed with and without employees.

A Self-employed is likely to take on more financial responsibility than a salaried worker, and would therefore be expected to show a higher level of financial literacy (H1). In addition to the above, it seems reasonable to contrast that self-employed workers with dependent employees also show higher financial competencies (H2). Furthermore, it is opportune to identify the socio-demographic profiles and financial product holdings that differentiate the different types of individual entrepreneurs (H3).

The following section of this article provides a review of the literature on financial literacy and the characteristics of the self-employed to justify theoretical support for its study. The third section provides a detailed description of the data used in this study and the methodology employed. This is followed by the results obtained from an empirical analysis, which are provided and discussed. The final section presents the conclusions of the study and proposes future lines of research.

Literature review

This section covers various aspects of financial education, so we are going to divide the theoretical framework into different subsections based on their thematic similarities. The approach of the review starts with an overview of financial literacy and the practical implications of this competence and ends with a focus on the Spanish context.

Approach to financial literacy

The benefits of financial literacy do not only occur in the area of knowledge but go beyond it (Huston, 2010; Muñoz-Murillo et al., 2020). Today, financial literacy is also considered to be the combination of awareness, knowledge, skills, attitude, and behaviour, with the purpose of facilitating individuals to make informed financial decisions that ensure their present and future economic well-being (Muñoz-Céspedes et al., 2021) However, the level of this specific form of human capital is considered to be low even in developed societies (Lusardi & Mitchell, 2014) Therefore, it appears to be essential to raise the financial literacy levels of individuals in order to foster healthy financial behaviors and, by extension, the financial well-being of society as a whole (Bayuk & Altobello, 2019; Feng et al., 2019).

There is abundant research on the need for financial literacy for decision-making at the household level, but the academic literature has hardly focused on analyzing the relationship between financial literacy and self-employment (Ćumurović & Hyll, 2019). An evident transformation of the labor market has occurred in the last four decades. Self-employment has grown in recent years driven by technology and the need for flexibility – and has done so more prominently since the COVID-19 pandemic – especially among members of Generation Z (Struckell et al., 2022). For this reason, the OECD (2018)Footnote 3 has highlighted the importance of acquiring financial literacy for SMEs and the academic literature suggests that a low level of financial literacy of entrepreneurs often leads to poor financial decisions being made (Lusardi, 2015). Moreover, these companies have fewer resources than larger ones to hire financial advisory services (Graña-Álvarez et al., 2021).

Contributions of the literature on financial literacy and individual entrepreneurs

The research to date has suggested that among the characteristics and personality traits associated with self-employment is lower risk aversion (Caliendo et al., 2009) and that financial literacy has a positive impact on attitudes towards self-employment and entrepreneurship (Kolvereid & Moen, 1997; Martin et al., 2013; Stella et al., 2022). Therefore, in a 2018 paper prepared together with the G20Footnote 4, the OECD recognized in its Principle 7 that a need to boost both the financial capabilities and strategic vision of SMEs is necessary to improve long-term business prospects.

A review of the academic literature corroborates that financial literacy is also of vital importance for young people to achieve financial prosperity in the future (Anshika & Singla, 2022; Totenhagen et al., 2015). Therefore, the development and implementation of financial literacy programs from an early age is necessary (Amagir et al., 2018)which additionally results in a greater ability to identify entrepreneurial opportunities (DeTienne & Chandler, 2004). This confirms that training and experience reduce the probability of closure (Simón Moya et al., 2012).

Financial competence generates benefits that favor the creation of competitive advantages that affect the management of sustainability in organizations (Acuña et al., 2022). The impact that financial literacy can have on sustainability has long been overlooked despite it appearing clear that developing sustainable behaviors can facilitate the achievement of the challenges of the 2030 Agenda (Kumari & Harikrishnan, 2021). On the other hand, this kind of knowledge on the part of people who opt for self-employment also has a favorable impact on the competitiveness and innovation of the company (Mason & Brown, 2013)as well as profitability (Delić et al., 2016; NOHONG et al., 2019). In addition, self-employed people with financial skills and abilities can carry out their business strategies more efficiently and maintain better control of their operational activities (Biazzo & Garengo, 2012).

However, some authors have highlighted that higher levels of financial literacy may increase the likelihood – but do not guarantee – that individuals make informed financial choices (Friedline & West, 2016; Xiao et al., 2014)as these are affected by cognitive biases (Friedline & West, 2016; Kahneman, 2003; Xiao et al., 2014). Financial competence, therefore, also requires the ability to use and interpret this kind of knowledge (Remund, 2010) This is an indispensable quality for entrepreneurs who need to correctly interpret the economic and financial information of their companies (Stadler et al., 2013).

A pioneering experience has initiated a whole field of applied research on the assessment of financial literacy (Lusardi & Mitchell, 2007). Most of the research to date has measured the level of this type of human capital through three basic questions designed by Professors Lusardi and Mitchell, known in the academic community as the “Big Three”. These questions are used internationally to assess knowledge about inflation, compound interest, and risk diversification. One of the largest surveys conducted, involving 140 economies, showed that financial illiteracy is a global problem with only one in three adults being financially literate (Klapper et al., 2015).

Under these circumstances, it seems interesting to approach the study of financial skills in terms of the effect of an individual’s occupational status. Thus, a project evaluates the financial literacy of MSMEsFootnote 5 and concludes that financial knowledge is directly related to gender, the experience of entrepreneurs and their families, attendance at training courses, turnover, and whether the company has had liquidity problems.

The state of financial education in Spain

There has been recent concern about this issue in Spain. In 2018, the Survey of Financial Competences was carried out and published by the Bank of Spain and the National Securities Market Commission in collaboration with the National Statistics Institute (Bover Hidiroglu et al., 2018). This pioneering study sought to gather information on the knowledge and understanding of financial concepts in the Spanish population over the age of 18 as well as the ownership, acquisition, and use of different savings, debt, and insurance vehicles. The results showed that 25% of the surveyed individuals had low or very low knowledge. In addition, it found that sole proprietors or self-employed workers had a higher level of financial literacy than employees (Ispierto et al., 2021). The Survey of Financial Competences in Small Enterprises conducted by the Bank of Spain as part of the OECD/INFE project provided a more exhaustive and detailed analysis of this group (Anghel et al., 2021). This publication aimed to assess the financial skills of Spanish firms with fewer than 50 employees. The main results of this study showed that owners with fewer than 20 employees and firms operating in the accommodation and hotel services, construction, and other personal services sectors had lower levels of financial literacy than firms with between 20 and 49 employees and those in other sectors.

Summarizing, the current literature on financial literacy should be seen as a transversal competence, and its practical implications favor the financial well-being of the self-employed. In the Spanish context, it has hardly been the subject of study, and recent data confirm the need for further research in this area.

Data and methodology

Data

The empirical analysis of this research is based on the survey of financial competences (SFC)Footnote 6, which was jointly prepared by Comisión Nacional del Mercado de Valores (CNMV), the Spanish capital markets regulator, and the BoS, with the collaboration of the Instituto Nacional de Estadística (INE), Official Spanish Statistics Office, as part of their so-called “Financial Literacy Plan”, which provided a representative sample of the population under study from each of Spain’s autonomous communities. The SFC is part of an international project coordinated by the International Network for Financial Literacy (INFE) under the auspices of the OECD (INFE, 2011) and its main objective is to compare the financial literacy of the Spanish population with that of a broad set of countries, as well as to analyse their ability to save and their possession of financial products, which is relevant compared to other research. The survey was conducted face-to-face during the fourth quarter of 2016 and the first half of 2017. It consisted of around 200 questions and a total of 8,554 interviews were collected.(Bover et al., 2019) provides a detailed description of the most relevant methodological aspects in the design and mplementation of the survey: the sample design, the questionnaire, the data collection process, the validation of the data, the computation of weights, and the imputation procedure

From the original sample of the SFC, our study is carried out from the subsample formed by the 952 individual or self-employed workers. In addition, to complement the analysis, we also carry out an exploratory analysis of the original sample that allows us to compare the financial culture of the self-employed with that of salaried workers.

Methodology

Binary logistic regression with maximum likelihood estimation was used as the analysis technique for this study with an individual’s employment status in terms of being self-employed as the dependent variable. Logistic regression was chosen among other supervised classification techniques because the dependent variable is binary, the normal distribution of the independent variables is not assured and the sample size is high. Furthermore, this methodology is suitable for analyzing the dependent variable (employment situation) since the logistic function guarantees that the estimated probability varies in the interval [0, 1] and allows us to quantify the importance of the relationship between each of the independent variables and the dependent variable based on the odds ratio associated with each independent variable. Different logistic regression models that maintain the same dependent variable are evaluated and a sensitivity analysis is carried out on several independent variables that are modified to achieve the proposed objectives. Examination of the parameter estimates facilitates the identification of actions that differentiate an individual’s occupational status according to his or her financial literacy.

An exhaustive preliminary analysis of the data was carried out to gain a better understanding of the general aspects as well as the possible relationships between variables. The survey was based on a large sample of randomly selected individuals that conformed to the necessary condition of randomness (Bover et al., 2018).

Table 1 presents the variables included in the analysis of the data collected from the Financial Skills Survey. Self-employment status (a1500) was proposed as the dependent variable and assigned a value of 1 if he or she is a self-employed person with no employees and 0 if he or she is a self-employed person with employees. The remainder of the variables were included as independent variables and the degree of their influence on an individual being an entrepreneur or self-employed was to be determined in the analysis. In addition to financial skills, several socio-demographic characteristics, the portfolio of financial assets of the sample person, and financial planning of expenditure were also included. Table 1 presents, in detail, the variables included in the data analysis according to the models analyzed.

Table 1 variables used in the analysis
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The treatments used for the quantitative explanatory variables, such as age (a04) and the highest level of literacy attained (a1100), are shown below in Table 2.

Table 2 descriptive statistics explanatory variables
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Respondents’ current employment situation and the answers to the questions on financial skills were recoded into binary variables. As far as financial skills are concerned, the questions about inflation (e0600) and compound interest rate (e0900) were assigned a value of 1 for correct answers and 0 for incorrect answers. In relation to the question on risk diversification (e1003), a value of 1 was taken in cases where the respondent did not know or did not answer; 0 for correct answers; and 2 for incorrect answers. This was because the response alternatives for this last question were reduced to true and false while the previous questions had four response alternatives. The remainder of the variables used were already expressed in dichotomous form.

In terms of financial literacy, the questions used in the Financial Competences Survey were those formulated by Professors Lusardi and Mitchell as they are the most internationally accepted in the academic literature on measuring levels of financial literacy. The formulation of these questions and their coding for subsequent analysis is detailed below:

Variable e0600 “Suppose you receive 1000 euros and inflation in that year was 1%. In one year’s time they will be able to buy:

  • More than they could buy today.

  • The same amount.

  • Less than they could buy today.

  • It depends on the kind of things they want to buy.”

Variable eo900 “Suppose you deposit 100 euros in a savings account with a fixed interest rate of 2% per annum. There are no fees or taxes on this account. If you do not make any other deposits to this account and do not withdraw any money, how much money will be in the account after five years?

  • More than 110 euros.

  • Exactly 110 euros.

  • Less than 110 euros.

  • It is impossible to say with the information given.”

Variable e1003 “It is generally possible to reduce the risk of investing in the stock market by buying a wide variety of stocks.

  • True.

  • False.”

An exploratory analysis of the data collected in the survey that refers to the “Big Three” is used. The first question refers to knowledge of inflation, the second to mastery of compound capitalization, and the last to risk diversification. The correct answer to each question was analyzed for the self-employed with and without contract workers separately and then compared with the group of full-time and part-time employees (Table 3).

The methodology continues with an estimation of a binary logistic regression model with maximum likelihood (1), where Yi is a dummy variable that takes the value of one when self-employed worker i has no dependent workers and Xi represents the vector of explanatory variables for worker i.

$$p\left( {{Y_i}} \right) = \frac{{{e^{{\beta _0} + \sum\nolimits_{i = 1}^p {{\beta _1}{X_i}} }}}}{{1 + {e^{{\beta _0} + \sum\nolimits_{i = 1}^p {{\beta _1}{X_i}} }}}}$$
(1)

where:

p(Yi) is the probability that self-employed worker i has no dependent workers.

Xi is the value of the explanatory variable for worker i.

The empirical analysis proposes several models to examine different scenarios that analyze the influence of the independent variables on self-employed status (without employees). The dependent variable is the same in all estimated models but each individual model modifies the explanatory variables. Different post-estimation statistical tests were carried out to examine each model’s adequacy of the fit, i.e. to verify that the variables selected as explanatory variables are correlated with the explained variables and to justify the creation of such models for our study. To this end, significance tests were performed on the coefficients in the estimated models and the standard error associated with each coefficient was incorporated. In addition, the statistical significance of each model was analyzed (likelihood and chi-square), the reliability of the models was measured (Hosmer and Lemeshow test), and the adjusted Nagelkerke and McFadden pseudo-R2 coefficients were measured, which facilitates the comparison of the logistic regression models estimated in this study. In each case, variables whose coefficients were significantly different from zero according to the results of the Wald test were selected.

Moreover, given the cross-sectional nature of the database used, the presence of autocorrelation is quite unlikely, especially as the information was randomly collected (Oliver-Márquez et al., 2021). Heteroscedasticity is not a major problem when estimating binary qualitative response models using the maximum likelihood method (Ginker & Lieberman, 2017).

A first analysis of the 952 self-employed workers (Model 1) includes, exclusively as independent variables, the financial competencies assessed according to the “Big Three” and several other questions related to expenditure and financial fragility. Subsequently, the study was carried out by taking only some socio-demographic characteristics and the holding of financial assets as independent variables (Model 2). Finally, all the variables used in the previous models were included together (Model 3) to arrive at the final model (Model 4), which includes all the significant explanatory variables from Model 3.

Results

The results obtained from the exploratory analysis of the survey data on the degree of understanding of financial literacy allow us to compare the knowledge of individual entrepreneurs or self-employed workers with that of salaried workers.The question with the most correct answers was the one referring to inflation – both for employees and the self-employed (Table 3). A total of 73.33% of the self-employed with hired workers answered this question correctly, which was more than 10 points higher than the other groups. By contrast, salaried workers were the group with the lowest percentage of correct answers to the questions referring to compound interest and risk diversification. It should be noted that only 50.56% of salaried workers answered the question on compound capitalization correctly and only 52.63% of them answered the question referring to risk when investing in the stock market correctly. The percentage of correct answers by the self-employed and those who are employees and are not in charge of employees did not show significant differences.

Table 3 Answer by question
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It is noteworthy that the group with the highest percentage of people answering the three questions correctly were individual entrepreneurs with employees, which was 29.7%, while the self-employed without employees and those who were self-employed did so with 23.31% and 21.64%, respectively.

In addition, this section presents the results of the statistical analysis assessing the link between self-employed workers with and without dependent workers and explanatory variables related to financial competencies, various sociodemographic characteristics, financial product holdings, financial planning and financial fragility. Estimates of the proposed models are presented for the 952 self-employed respondents from the Financial Skills Survey. In all models, the dependent variable was the same and the independent variables were modified to study how the statistical analysis changes after the transformation process. Furthermore, we compare the effects obtained from the different estimations carried out according to the specifications described above.

Table 4 shows the four estimated models in which employment situation is maintained as the dependent variable. The risk associated with the independent variables (odds ratios) involved in each model and the estimated coefficient estimates for each of them are shown. In each case, the variables whose coefficients were significantly different from zero according to the results of the Wald test were selected.

The average age of the surveyed individual entrepreneurs or self-employed workers was 46.01 years and the average highest level of education attained (4.81) is between the second stage of secondary education or similar which includes studies ranging from from the age of 16 as –Bachillerato, BUP, COU, Preuniversitario, Bachiller Superior, Ciclos formativos de Grado Medio de Formación Profesional and Formación Profesional I – and post-secondary non-higher education – which includes programs that provide a Certificate of Professionalism Level 3, i.e. short programs that require a second stage of secondary education or similar.

Table 4 Logit regression models
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Model 3 incorporates all the independent variables used in the analysis: gender (a0000), age (a04), country of birth (a0100), the highest level of education attained (a1100), living alone (a0900a), lives with a partner (a0900b), has a current account, passbook, or other deposits (b0100); has a mortgage (b0301), has a pension plan (b0302), has an investment fund (b0303), owns shares (b0304), has fixed income assets (b0305), has a personal loan (b0306), has credit cards (b0307), has savings or term or demand account or deposit (b0308), has life insurance (b0309), has health insurance (b0310), Big Three: inflation (e0600); Big Three: compound interest (e0900); Big Three: risk diversification (e1003); household expenditure planning (j0100), and financial fragility (j0200). In model 4, the variables that did not show explanatory power in model 3 were ignored and a sensitivity analysis of the variables was carried out on an individual basis. Model 1 includes only the explanatory variables of financial skills and those referring to expenditure planning and financial fragility, while model 2 incorporates only some personal characteristics and the portfolio of financial products.

The sociodemographic and financial product holding variables included in model 2 had greater explanatory power for the self-employed without employees (Nagelkerke R2 = 0.113) (Nagelkerke, 1991) than those that only included financial skills and financial planning and vulnerability in model 1 (Nagelkerke R2 = 0.028). In model 3, all the variables were taken into account and once those that were significant were selected, model 4 was estimated in which it was observed that financial skills complemented the explanatory power of the analysis of sociodemographic characteristics and the holding of financial assets with respect to the self-employed without employees, although not in a robust way (Nagelkerke R2 = 0.129). The three different models in model 1 could explain approximately 67% of the data.

Therefore, model 4 is chosen as optimal and the estimated odds ratios are analyzed to quantify the relationship between the independent variables that remains in the final model and the employment situation. Thus, the consideration of being self-employed without employees was positively related (odds-ratio = 1.78) to the question assessing basic knowledge about inflation (e0600). Greater knowledge of this macroeconomic variable increased the probability of being self-employed without employees by 78% compared to those who did not answer this question correctly. The other two questions assessing financial knowledge regarding compound interest and risk diversification did not show great explanatory power with respect to the dependent variable – neither in this model nor in the first one – that only considered the level of financial education and were eliminated from the final model due to their lack of significance. On the other hand, a relationship – in this case negative – was observed when the respondent was placed in the following situation of financial fragility: “Sometimes a household’s income is not sufficient to meet its current expenses. In the last 12 months, has your current expenditure been higher than your income? (j0200)”. In this scenario, not having had expenses higher than income in the last year increased the probability of being self-employed without workers by 63.9% (odds-ratio = 0.61).

On analyzing the data relating to the socio-demographic factors that influence the self-employed without employees in the final model, the gender variable (a0000) was found to be directly related to the dependent variable (odds-ratio = 1.479), so being male increased the probability of being self-employed without employees by 47.9% compared to being female. Therefore, self-employed men were more likely to have no employees than self-employed women. However, country of birth (a0100) was inversely related to being self-employed without employees (odds ratio = 0.639), being born outside Spain increased the probability of being self-employed without employees by 56.4% compared to being born in Spain.

Regarding ownership of financial products, five explanatory variables were significant: currently having a mortgage (b0301) (odds-ratio = 1.682), having acquired shares in a company in the last two years even if they are no longer owned (b0304) (odds-ratio = 2.302), currently having a personal loan (b0306) (odds-ratio = 1.459), having taken out life insurance as a policyholder and not only as a beneficiary (b0309) (odds-ratio = 1.338) and having taken out health insurance as a policyholder (b0310) (odds-ratio = 1.345), all of which were more likely to be found in self-employed workers without employees.

Of all these variables that refer to the portfolio of financial products, the one that was most important in explaining whether the individual was self-employed without employees was the holding of shares in the last two years, regardless of whether or not they were traded on the stock market at the time. According to the data analyzed, the self-employed without employees were more likely to own shares than not to own shares, specifically 2.3 times more. Another of the most powerful explanatory variables was the taking out of mortgages, which was 68.2% more likely for this type of self-employed than for those who hire employees. Taking out a personal loan without a guarantor, health insurance as a policyholder and not only as a beneficiary, or life insurance are more likely in self-employed without employees than in self-employed with employees, 45.9%, 34.5% and 33.8%, respectively.“

Analysis and discussion

The intention of the research is to analyze the influence that certain variables have on the decision to become an entrepreneur. The empirical analysis, based on logistic regression models, allows us to measure the explanatory capacity of the independent variables introduced in the model.The results of the research confirm a low level of financial literacy in terms of understanding basic financial concepts for this type of economic agent.

Previous research examining the impact of entrepreneurship education has mainly focused on the evaluation of participation in financial literacy programs but has not focused on financial literacy per se (Ćumurović & Hyll, 2019). Focusing on the self-employed or sole proprietors, our research suggests that financial literacy, considered in isolation from the other independent variables, shows little explanatory power with respect to whether the self-employed have employees or not. Recent research examining financial literacy in the United States, using data from the 2021 National Financial Capability Study, finds that the self-employed and those working for an employer scored similarly on the same questions used in our research on financial literacy (Lusardi & Streeter, 2023). In any case, the results show that, in general, financial skills are a pending task in the older population in general and in the self-employed in particular, since the percentage of these types of workers who correctly answered the questions on financial literacy is very improvable, which is in line with the existing academic literature (Klapper et al., 2015; West & Worthington, 2018).

As can be seen from our results, the dimension with the most correct answers was inflation, followed by risk diversification and compound capitalization. There is a current inflation crisis impacting the global economy and one of the sectors most affected by inflation is the self-employed sector as the prices of energy and raw materials have skyrocketed. For these reasons, knowledge of this macroeconomic variable is essential for business survival. These results imply that the individual entrepreneur must understand the impact of continuous variations in the general price level of the economy on price setting. (Torrubia & Ximénez-De-Embún, 2020) To this end, it must be taken into account that an individual entrepreneur or a self-employed person appears in the market as a supplier of products for which he has to set prices”.

The survey also showed that opting for self-employment was positively associated with financial knowledge of compound interest for the population aged 40–64, especially in comparison with the rest of the population. As age increases financial literacy increases but up to an age threshold (Torrubia & Ximénez-De-Embún, 2020). An understanding of interest rates seems essential and, as already highlighted, despite the apparent higher propensity of the self-employed labor force, they still have little knowledge of this dimension. It is also true that they need not be very different from the rest of the general population, because, in relation to the questions on compound interest (capitalization or discounting) and diversification, the self-employed may be responding as savers or demanders of assets for their portfolios. In other words, capitalization, borrowing, or diversification decisions do not have a different pattern for the self-employed than those of other economic agents as employees, at least if they are not specialized in the financial services sectors or do not require significant investments to develop their activities.

On the other hand, being born outside Spain increased the probability of being self-employed without employees compared to those with hired employees. The employment rate of immigrants was lower than Spanish nationals, which is a circumstance that may lead to entrepreneurial motivations (Bretones & González, 2005), a person who was not born in Spain is likely to have higher entry costs into the labor market as a salaried worker than as a self-employed person. However, in general, the number of self-employed and, above all, highly educated workers has risen considerably in this segment of the population (van Stel & van der Zwan, 2020). This trend is more pronounced in the case of female self-employment (Johansson Sevä et al., 2016).

In favor of this greater probability of becoming an individual entrepreneur among foreign-born individuals is the fact that they do not have employees to support them, which facilitates personal autonomy and reduces wage costs and responsibilities. Moreover, both older individuals and men in these groups show a greater predisposition towards self-employment, as well as those with a higher level of education, which leads to lower availability of skilled labor demand for immigrants (Cueto & Álvarez, 2015). An inconsistency with the results of a greater predisposition to self-employment is the additional difficulty that someone not born in the country may encounter when integrating into the labor market as an employee, but there are two explanations for this. Firstly, the more enterprising will consider individual entrepreneurship as a more independent solution if they know and are convinced that there is a demand in the domestic market for their services. Secondly, the process of outsourcing jobs by many firms (also associated with higher levels of precariousness) means that many migrant workers become sole proprietors as the only means of earning a recurring income. This is consistent with other studies that have shown that these segments of the population are less skilled. For example, research in the United States has shown that educational attainment is lower for minority groups than for the general population. Although minority degree completion rates are increasing, 56% of Hispanic workers have only a high school education or less, compared to 36% of the general workforce (Cueto & Álvarez, 2015). Thus, in an environment of casualization of professional tasks that requires less specialization, contracting services to self-employed workers rather than contract labor is a relatively more common means and, consequently, affects those who are less educated and/or integrated to a greater extent.

The results also show that there is a positive and significant relationship between being self-employed without employees and being male. In general, previous research shows that men are more likely to be self-employed than women (Demirbağ et al., 2023; Marlow, 2002; Peters et al., 2019). A recent study looking at the relationship between women and self-employment identifies that women show higher risk aversion than men (Nitani et al., 2020b). Moreover, their self-employment is mainly concentrated in education, health services and retail activities (Christnacht et al., 2018). Moreover, those women who choose to become sole proprietors or self-employed do so, even if they earn less income, because of their flexible working arrangements and other non-wage benefits and therefore sometimes choose to have employees in order to be able to delegate tasks that allow them to reconcile work and family life (Budig, 2006; Justo et al., 2021).

The study also confirms the importance of certain factors such as the existence and properties of a portfolio of financial products for this type of economic agent. Thus, the probability of buying shares as a self-employed person without employees is higher than for self-employed persons with employees. This is because there is a different attitude towards risk if the sole proprietor has a wage liability. In general, irrespective of whether the purchase of equity assets is part of their business strategies or part of their portfolios as households or final consumers, it is clear from the research that entrepreneurs without employees are less risk averse. It is known that owning and controlling a business is a risky activity, so individuals who are more risk tolerant are more likely to become entrepreneurs (Caliendo et al., 2014). It is also important to take into account some other personality traits in addition to risk aversion, such as a preference for autonomy and innovativeness, which stand out among those who exhibit entrepreneurship (Fairlie & Holleran, 2012).

Analysis of the results shows that the self-employed are more likely to have a mortgage than those who do not. The fact that they need less floor space to carry out their business activity means that they may be more interested in taking out a mortgage than a rental contract. For most entrepreneurs, housing plays a dual role since it not only provides financial security but also physical space and favours the flexibility essential for entrepreneurship (Fairlie & Holleran, 2012; Reuschke, 2016). In addition, mortgage lending significantly affects the dynamics of job creation over the business cycle of small firms (Adelino et al., 2015). The study also showed a significant, albeit less strong, positive relationship in the acquisition of personal loans, revealing a differential propensity to rely on leverage as a means to improve the level of their likely future income.It is also true that a distinction should be made as to whether these loans are related to the economic activity undertaken.

Regarding financial fragility, the probability of being self-employed without employees decreased when it was stated that their current expenses had not exceeded their income in the last twelve months, as there was a negative relationship between being in a situation of financial fragility and being self-employed without employees. Those self-employed who choose to have employees have to assume high recruitment costs, which has a significant impact on their expenses and leads to sometimes finding themselves in a situation of financial vulnerability. In this sense, it is striking that some authors go a step further and point out that sometimes suffering from a bad financial situation can even lead to the development of financial literacy (Buckland, 2010).

One of the limitations of this work is that, due to the use of the so-called “Big Three” questions, it is difficult to find instruments that assess financial literacy beyond financial knowledge (Lusardi & Streeter, 2023).Moreover, it seems logical to think that, if possessing financial knowledge is not always sufficient to make informed financial decisions, questionnaires with questions on financial behavior(Stella et al., 2020) would provide more valuable information. In addition, the database is cross-sectional and we cannot analyze variations between different periods. In addition, the database used in the analysis is cross-sectional and, consequently, we cannot analyze variations between different time periods.

The theoretical contribution and implications of this study were obtained by testing the hypotheses. The results of the study support H1 by detecting that the financial literacy of sole proprietors or the self-employed was higher than that of employees in terms of understanding compound interest and risk diversification. The percentage of correct answers to the three questions asked was very similar between employees and those who choose to be self-employed without hiring employees – with those who hire employees showing a higher level of financial literacy.

The empirical analysis confirmed H2 by revealing that there were differences in the levels of financial literacy among the groups of self-employed analyzed, with the largest gap being in the understanding of the macroeconomic concept of inflation.

Regarding H3, the results are in line with other research carried out (Maté et al., 2021; Torrubia & Ximénez-De-Embún, 2020) which supported that gender and country of birth are related to the financial skills of self-employed workers without employees, as well as with the possession of some financial products. Of the variables analyzed in this research, those with the greatest explanatory power are the ownership of shares and the taking out of mortgages.

The findings provide a valuable opportunity to develop policies and training programs for this type of human capital aimed at raising the financial skills of individual entrepreneurs to improve their personal and business management.

Conclusion

In the context of a changing business environment due to the radical technological transformation of aspects such as digitization and financialization, this study sought to reinforce the importance of financial competencies as a form of human capital specific to informed decision-making that ensures the financial well-being of individuals or self-employed entrepreneurs. Particularly relevant are the findings that confirm, based on the empirical analysis, that financial skills complement the explanatory power of socio-demographic characteristics and financial product holdings with respect to self-employed individuals who did not have hired workers. The results also confirmed that people who opt for individual entrepreneurship or self-employment – and especially those who have employees under them – had higher levels of financial literacy than salaried workers.

The results obtained from our study are consistent with those obtained in various international studies on the subject, showing that there is an opportunity in the coming years to increase the levels of financial skills of the self-employed to aid the country’s economic development. To this end, policies are needed that favor the implementation of strategies and the promotion of training programs, both public and private, to promote this type of human capital among the self-employed.

For example, financial institutions should make efforts to communicate some concepts in a more understandable way, since in Spain one in five homeowners do not understand correctly the relationship between interest and the duration of a loan (Fernández-López et al., 2023). Although financial education at school is fundamental, it is also necessary to consider alternative ways to promote it, including in the workplace.

The contributions provided by our study open up new avenues for research as they highlight the need to continue researching the benefits of financial literacy from a more cross-cutting perspective that enables growth in the levels of well-being, behavior, and financial knowledge of individual entrepreneurs or self-employed workers. Furthermore, it is essential to analyze the existing differences in financial education between different population groups so that the implementation of measures can be more personalized and effective.

The limitations of this paper are due to the use of data from the Survey of Financial Skills, as the dichotomous variables could be formulated in greater detail to obtain more specific results. In addition, the questionnaire lacked a question that identifies whether the individual answered as a sole proprietor or self-employed.

Definitively, a paradigm shift in the field of financial literacy is required that calls for changes in educational policies to promote the creation of specific, cross-cutting training programs for this segment of the population, both by public and private institutions, to raise the levels of financial skills of individual entrepreneurs or the self-employed. The effects of this will not only improve the management of personal and business finances but also have a positive impact on society as a whole.