The effect of financial literacy on the performance of small-scale tea farmers in Kericho county

Abstract

The study focused on the effect of financial literacy on the performance of small-scale tea farmers in Kericho County, Kenya. Financial literacy equips individuals with the knowledge and skills necessary to make informed financial decisions. It entails understanding and applying fundamental concepts of personal finance, including budgeting, saving, investing, and debt management. Financial education further provides tools for effective credit management, enabling individuals to reduce debt through responsible credit use. A solid grasp of financial principles enhances one’s capacity to make sound financial choices, thereby promoting long-term economic stability. The study was guided by the following objectives: to assess the effect of budgeting skills on the financial performance of small-scale tea farmers in Kericho County, to evaluate the effect of savings skills on the financial performance of small-scale tea farmers in Kericho County, to determine the effect of investment skills on the financial performance of small-scale tea farmers in Kericho County, and to analyze the effect of debt management skills on the financial performance of small-scale tea farmers in Kericho County. The financial performance and budgeting skills of farmers can be explained through several theoretical frameworks. The Theory of Planned Behavior suggests that farmers’ intentions toward financial planning directly influence their budgeting outcomes. The Life Cycle Hypothesis explains how farmers accumulate and deplete savings to maintain long-term financial stability. The Capital Asset Pricing Model provides a basis for assessing risk and identifying profitable investment opportunities. Additionally, the Pecking Order Theory clarifies farmers’ preference for specific debt-financing choices aimed at minimizing financial risk exposure. Methodologically, questionnaires with small-scale tea farmers were distributed to gather primary data. The study targeted small scale farmers in Kericho County spread across all sub-counties and a sample size of 348 to apply questionnaires as their primary research tool. The quantitative data were analyzed using Statistical Package for Social Sciences (SPSS) version 22.0, and the study used descriptive and correlational research design and multiple regressions to establish links between independent and dependent variables. The study examined the impact of financial literacy on the performance of small-scale tea farmers in Kericho County. The results showed that savings skills, investment skills, and debt management skills had a significant positive effect on farmers' financial performance, while budgeting skills did not show a statistically significant impact. The regression analysis revealed that skills related to saving, investing, and managing debt are crucial in improving financial outcomes for tea farmers. Based on the findings, it was concluded that enhancing financial literacy is key to boosting the financial success of small-scale tea farmers. Recommendations were made to increase financial literacy through targeted training programs and policy interventions. The study acknowledged limitations such as the sample size and geographic focus on Kericho County, suggesting that future research could expand to other tea-growing regions or consider external factors like market volatility and government policies. These areas could provide further insights into improving the financial resilience of small-scale tea farmers.