Financial literacy, financial sophistication, Institutional factors And Perceived Retirement Saving Adequacy among public university employees in Kenya

Abstract

Sustaining adequate retirement savings has received increased attention as a result of ageing population across the globe and an increase in retirement poverty which stands at 56% in Kenya. Perceived retirement saving adequacy is a measure of whether current retirement savings are adequate for a comfortable retirement and should be classified as priority in ensuring financial security at old age. Financial literacy has been singled out as a major determinant of perceived retirement saving adequacy however the results are inconclusive. Furthermore, studies indicate that financially literate individuals may be more financially sophisticated and therefore tend to make rational financial decisions. There is also a stream of literature that institutional factor (IF) affect retirement savings. The general objective of this study is to determine the mediation and moderation of financial sophistication and institutional factors on relationship between financial literacy and perceived retirement savings adequacy. The specific objectives are to determine the direct effects of financial literacy and financial sophistication on perceived retirement saving adequacy, to find out the effect of financial sophistication on relationship between financial literacy and perceived retirement savings adequacy among public university employees in Kenya, to examine the moderating effects of institutional factors on the relationship between financial sophistication and perceived retirement savings adequacy. Finally, to assess the mediated moderation of financial sophistication and institutional factors on the relationship between financial literacy and perceived retirement saving adequacy. The study employed expectancy theory, prospect theory and symbolic interaction theory. The study adopted explanatory research design and was anchored on a positivist paradigm. The study used primary data from public university employees in Kenya. Questionnaires were used to collect data. The research targeted 17,320 employees and a sample of 390 was selected. Stratified systematic random sampling was used to arrive at the respondents. Both descriptive and inferential statistics were used to analyze data. Multiple regressions were used. Moderation mediation was tested using process macro at 95% confidence level. The results showed a positive relationship between FL and PRSA (β=.664, p<000), FL and FS ( β=.8064, p<.000), FS and PRSA ( β=.686, p<.000), IS and PRSA ( β=2.498, p=<.000 ). Institutional factors being a moderator buffered the relationship between financial literacy and retirement savings adequacy and the results were ( β=-.549, p=<.000 ), R-sq0.6678. Further, financial sophisticated mediated the link between financial literacy and retirement savings adequacy ( β=.554) was significant and the lower limit confidence interval (bootLLCI) was a positive (.4356) while the upper limit confidence interval (bootULCI) was (.6795) . The moderated mediation was also significant and negative ( β=-.-4423 ), (bootLLCI) at -.5234 and (bootULCI) was -.3607.Based on the findings, financial literacy, financial sophistications and institutional factors have a significant effect on perceived retirement savings adequacy among public university employees in Kenya. The finding of the study improves theory application of expectancy theory and prospect theory .The findings of the study also suggest that financial literacy and sophistication should be intensified by both Government institutions and private investors to improve knowledge and skills on financial matters which in turn will create awareness about retirement savings and will ultimately ensure that retirement funding is achieved. The study is also beneficial to policy makers in ensuring institutions handling pensions and retirement savings are trust worthy so that institutional failures are minimized and retirement savings adequacy can be achieved. Further research can be done in actual retirement savings since the study focused on the subjective assessment of retirement savings