EFFECTS OF FINANCIAL LITERACY ON PERSONAL FINANCIAL DECISIONS AMONG EGERTON UNIVERSITY EMPLOYEES, NAKURU COUNTY, KENYA

ABSTRACT
The current financial service market is complex and offers consumers a vast array of products and services to meet their financial needs. The degree of choice requires that consumers be equipped with the financial knowledge and skills to evaluate the options available in the market. Studies by (Beal & Delpachitra, 2003, Nyamute & Monyoncho, 2008) on the effects of financial on personal financial decisions indicate contradicting results. This study was carried out to establish the effect of financial literacy on personal financial decisions among Egerton University employees. The study was guided by the general objective of examining the effects of financial literacy on personal financial decisions. Specifically: to determine the effect of financial knowledge on personal financial decisions, to determine the effect of financial skills on personal financial decisions and to determine the effect of financial attitude on personal financial decisions. The study adopted the descriptive survey research design. The population of the study consisted of all Egerton University employees consisting of top management, middle level staff who include technical, administrative and teaching staff and lower level staff totaling to 1998 employees. A sample of 320 respondents was determined using a sample determination table. The sample size determined was drawn proportionately from each employee categorization. A random sample from each stratum was taken in a number proportional to the stratum’s size when compared to the population. Primary data was collected through structured questionnaires. Data validity and reliability was checked by pilot testing and by use of Cronbach Alpha (0.876). Data was analyzed using descriptive statistics, Pearson correlation and multiple regression analysis with the help of Statistical package for Social Sciences (SPSS) .Findings revealed that financial knowledge and financial skills were significant in determining personal financial decisions while financial attitudes did not influence significantly personal financial decisions. Overall the effect of financial literacy was found to have a positive statistically significant relationship with personal financial decisions. The study recommendations include: Financial literacy programs with the aim of closing any knowledge gaps. The training will ensure that the employees have the requisite skills to manage their personal finances. This will enable them formulate financial plans to achieve financial freedom and improve their welfare and standard of living which would then improve productivity at their place of work. The findings of this study are important not only to the employees of Egerton University but also to the employer and government to guide in policy formulation.

CHAPTER ONE 
INTRODUCTION 
Background of the Study 
The global marketplace has become increasingly risky and unpredictable. It affects the nations and the societies and its main implications include rising costs of goods and services that push people to make well-informed financial decisions (Lusardi & Mitchell, 2011). Remund (2010) defines financial literacy as a measure of the degree to which one understands key financial concepts and possesses the ability and confidence to manage personal finances through appropriate, short-term decision-making and sound, long-range financial planning, while mindful of life events and changing economic conditions. 

Financial literacy has immeasurable significance to both individuals and institutions (Lusardi & Mitchell, 2007). For example, they assert that financially literate consumers make better clients, who in turn represent reduced risk for financial institutions and contribute to a stronger bottom line. And on the market level informed consumers play a developmental and monitoring role in the market by weeding out bad practices and providers. 

According to Jappelli (2012), financial literacy is increasingly important for households’ decisions about how to invest wealth and how much to borrow in financial markets. Financially literate households are able to use scarce resources more effectively, choose the financial services and products that best meet their needs and shift from reactive to pro-active decision making. Informed decisions to budget, save and borrow carefully enhance financial stability and ability to plan for the future and family welfare. 

Malcolm (2000) describes that on an individual level, the lack of financial literacy makes people more susceptible to the devastation caused by emergencies, over- indebtedness, over-zealous retailers or fraudulent schemes. On an institutional level, lack of financial literacy generates misinformation and mistrust of formal financial service providers. Therefore in promoting financial literacy, financial institutions can better meet client demand, gain competitive advantage, foster informed consumers and enhance their standing as good corporate citizens. Financial literacy is a win-win proposition for clients and institutions. 

The Global financial crisis of 2008 highlighted vulnerabilities created by financial innovation and the increasing complexity of financial markets. For example, financial products that require financial knowledge have become too complex for consumers to easily understand, and their financial details disclosure inadequate to clarify the risks. While this situation occurred in developed-country markets, these same issues are relevant for developing-country markets and for a range of financial products and providers (Braunstein & Welch, 2002). Cole et al. (2008) derives that financial decision making capability has received growing attention in both the developed and developing world, as a potentially important determinant of household well- being. 

Financial literacy surveys have been conducted in the U.K. (Atkinson et al., 2007), Austria (Fessleret al., 2007), Poland (Szafranska & Matysik-Pejas, 2010), Fiji (Sibley, 2010), and Ireland (O’Donnell & Keeney, 2009). Some of the findings from the most recent FinScope surveys in 14 countries generally indicate low levels of financial access, especially occasioned by low literacy levels. For instance, in Ghana, one of the higher-income countries in the region, only 56 percent of adults use any kind of financial product This figure rises to 81 percent in Lesotho, but falls to just 22 percent in Mozambique. In seven African countries only 29% of adults had a bank account and that approximately 50% use no financial products whatsoever, not even informal financial products (DFID, 2008). These surveys indicate that financial literacy levels are low in high income countries and even lower in middle and low income countries. 

It is important for people of all ages to be capable of making effective personal financial decision. The ability to make well informed financial decisions plays an important part in the ability of individuals to manage their financial affairs. The outcomes of financial decisions have significant implications for an individual’s financial security and standard of living. In order for households to make day to day decisions correctly they should know the basic concepts of personal finance such as budgeting, compound interest and investment risks during short and long term. These concepts help in eliminating most frequent incorrect decisions. In order to make correct decisions appropriate level of financial literacy in needed (Lusardi, 2008). 

In Kenya, the FinAccess 2013 survey results revealed that the levels of financial literacy are low despite the concerted efforts to raise literacy levels by the government and other stakeholders. 

The Kenyan government while admitting the seriousness of this problem said “education and training in Kenya today is facing various challenges that have negatively impacted on its economic development. Unless addressed immediately, these challenges are likely to affect unfavorably the current and future development in Kenya” (Ministry of Education Science & Technology, 2004). With the entry of new providers and ever-more complex financial products and services, with the inclusion of new consumers to financial markets individuals must make appropriate decisions. These factors, together with a likely contraction of international capital flows, increase the importance of financial literacy for consumers in developing countries like Kenya.

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Item Type: Kenyan Postgraduate Material  |  Attribute: 72 pages  |  Chapters: 1-5
Format: MS Word  |  Price: KSh900  |  Delivery: Within 30Mins.
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