Abstract

This research aimed to explore how well managers of small and medium enterprises (SMEs) in Mogadishu, Somalia, understand financial concepts such as savings, managing debt, handling financial risks, and planning for retirement, and how this understanding affects their investment decisions. The background of the study highlights that many SMEs in Mogadishu struggle to sustain their operations, with low profits or failure often due to poor investment choices. To investigate the link between financial literacy and investment decision-making among these managers, the study was
based on the principles of modern portfolio theory. The research used a correlational design to analyze data from 250 targeted SMEs, with 154 respondents selected through stratified random sampling. Data collection was facilitated by questionnaires, and the analysis involved calculating means, standard deviations, and conducting regression analysis. The findings indicated that among the financial literacy components, debt management had the most significant impact on investment decisions (β=0.490, p<0.05), followed by financial risk management (β=0.137, p<0.05), and lastly, the
ability to save (β=0.128, p<0.05). The study concluded that financial literacy plays a crucial role in influencing investment decisions among SME managers in Mogadishu, suggesting that improving financial knowledge could lead to
better business outcomes.