This piece was written by Faye Pang, Canada Country Manager at Xero.
‘F’ is for financial literacy. It’s also the letter grade that Ontario’s millennial small business owners earned when we tested theirs.
Earlier this year, Xero conducted an independent national survey of 800 small business owners to find out just how financially literate they were. What we found was a gap between their perceived and actual financial literacy, but nowhere was that more true than among Ontario’s millennial small business owners.
Ontario’s small businesses have been deeply impacted by the global pandemic, with the province seeing some of the strictest and longest-running COVID-19 business closures in North America over the last year. As stay-at-home orders lift and we prepare to step into this unique tax season together, closing the financial literacy gap isn’t something we can afford to ignore anymore.
To truly support small businesses, we need to give them a financial North Star and help them shake off the outdated idea that the road to success is one travelled alone.
The consequences of poor financial literacy on small businesses
Despite scoring the lowest financial literacy grade in the country, 46% of small business owners in Ontario plan to file their taxes themselves this year, putting them at risk of costly tax-filings and, worse yet, leaving extra money on the table.
Canada’s small businesses have collectively taken on $135 billion in debt since the start of the pandemic. While the federal government has rolled out various pandemic aid programs with the intent of supporting small businesses, they’ve also inadvertently created a lot of confusion. In all, 17% of our survey respondents were unaware that they would have to report the total amount of pandemic aid they’d received in 2020.
We’ve already seen instances where self-employed Canadians have been required to repay the benefits they’d previously applied for and received, due to misunderstandings around eligibility requirements. The takeaway here is that without a foundation of financial literacy in place, millennial small business owners need easy access to information. This will help to not only bridge their knowledge gaps, but also begin building their own foundation of financial literacy.
A foundation of financial literacy
Millennial small business owners didn’t exactly get a strong start; financial literacy education is lacking in the school system, and as a result, young entrepreneurs are having to figure it out as they go. Technology and the internet, for their parts, have been incredible tools for this generation, making it more accessible than ever to launch and run a business. But as technology has grown in importance, so have the number of ‘financial experts’ sharing advice online.
Compared to their generation X and baby boomer counterparts, we found that millennial small business owners expressed higher degrees of trust in social media platforms as their go-to sources for financial and business-related information. Instagram and TikTok scored the highest at 39% and 29% respectively, leaving millennials more prone to unverified financial misinformation that could ultimately break their businesses.
Another impediment to Canada’s small business owners’ financial literacy is the lack of access to a robust financial advisor space. With few credible sources through which small business owners can become more informed, it’s no wonder that millennials have been forced to take matters into their own hands.
Finding a financial ‘North Star’
In order for Ontario’s small business owners to improve their financial literacy, it’s going to require the collective effort of the government, our financial and educational institutions, and small business owners themselves. Fortunately, we’ve already started to see some progress.
At Xero, we’ve seen firsthand how cultivating collaboration and meaningful relationships with our accounting and bookkeeping partners has yielded success. We believe that small businesses can benefit from a similar collaborative approach. The shift to a ‘do-it-together’ mentality — from ‘do-it-yourself’ — encourages small business owners to ask for help when they need it, and to seek the advice of financial experts or digital tools that can give their businesses a leg up.
This is the inspiration behind Xero’s new partnership with the Toronto Region Board of Trade’s Recovery Activation Program (RAP). Together, we’re working to provide Ontario businesses with the support they need to digitally transform and successfully meet the demands of a rapidly changing world. RAP connects them with experts, other businesses, and opportunities across Canada and beyond.
Some 34% of Ontario’s millennial small business owners identified being “better prepared for financial instability” as their primary business goal for 2021. With a strong financial team behind them, there’s no reason they won’t be.