Effect of financial literacy on financial preparedness for retirement among permanent and pensionable employees in state owned corporations in Nairobi, Kenya
Agunga, Mourine A.
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Personal finance literature underscore the fact that only a minority of households feel confident about their saving adequacy on retirement because little is known about why people fail to plan and prepare for eventual retirement and even among households with similar socioeconomic characteristics savings and wealth vary considerably. Further, questions abound on whether planning and financial preparedness costs affect retirement saving patterns considering that many households arrive close to retirement with little or inadequate financial resources to maintain their lifestyle. To better understand these issues, exploring the tradeoff between saving and consumption needs to be a priority given that saving for retirement is an important decision individuals in active employment have to make over their working lifespan. Even though empirical studies in other parts of the world have found that financial literacy helps individuals plan for their retirement adequately, efforts to test the same among employees in Kenya remains scanty. In addition to this, relatively low levels of retirement preparedness have been reported in Kenya. While some studies have been done locally on the formal sector, there is still a lack of systematically documented information on financial preparedness for retirement amongst the public sector employees and the factors accounting for this even though the public service being the single largest employer. This study therefore sought to investigate the effects of financial literacy on financial preparedness for retirement amongst permanent and pensionable employees in state owned corporations in Kenya. Specifically the study sought to establish the relationship between knowledge of financial instruments as well as the computational capability of retirement benefits and financial preparedness for retirement amongst employees.This relationship was proposed to be moderated by both individual employee demographic characteristics and prevailing financial factors.This study used a descriptive study design. The population for this study consisted of all employees (on permanent and pensionable terms) of state corporations in Nairobi, Kenya who had worked on the same corporations for five years and above estimated to be 4,619 employees. Proportionate sampling method was used to select a representative sample of 384 respondents from the 29 state corporations.The 29 corporations were selected on the basis of those corporations that had Headquarters in Nairobi Central Business District,this is arrived at having also considered their long term employment in nature,compliance to statutory requirements on remittance of retirement benefits and above all duty to contribute to government agenda for national development to which preparedness for retirement is considered a major factor.Primary data was collected using self administerd questionnaires and the data was analyzed using descriptive and inferential statistics of means,standard deviations and multiple regression analysis respectively to test the relationship between the indepedent and dependent variables and presented in tables.The study found that financial literacy positively affect financial preparedness for retirement. However, knowledge of financial instrument was found to be insignificant while computation capability for retirement was significant. Demographic characteristics and financial factors findings revealed that they moderates the relationship between financial literacy and financial preparedness for retirement and both were as well significant. The study recommended the need to formulate policies and programs on education and training and as well as a well documented information in order to foster financial preparedness for retirement.