Effect of financial literacy on personal financial management: the case of Mumias Sugar Company Employees

Abstract

The study sought to establish the effect of financial literacy on personal financial management using the case of Mumias Sugar Company. The specific objectives of the study were; to establish the effect of financial literacy on saving practices of Mumias Sugar Company employees, to establish the effect of financial literacy on social security planning of Mumias Sugar Company employees and to determine the effect of financial literacy on debt management practices adopted by Mumias Sugar company employees. The descriptive survey design was adopted in this study .This method deemed suitable since the research sought to explore the association between the various variables forming the basis of the study. The study targeted a total of 2000 employees, from Mumias sugar Company (Ministry of Trade, 2013). The simple random sampling was used to select 200 employees from the strata, so that each member of the target population stands an equal chance of being included in the target populations of 200 employees. The study used primary data collected from semi-structured questionnaires and the collected data was analyzed using SPSS and Microsoft Excel whereby means, standard deviations, frequencies and percentages were computed. The study found out that, there was a strong positive relationship between savings literacy change and personal financial management (Pearson correlation = 0.501 p value = 0.000), there was a strong positive relationship between investment literacy and personal financial management (Pearson correlation = 0.579 p value = 0.000), there was a strong positive relationship between retirement plan literacy and personal financial management (Pearson correlation = 0.850 p value = 0.000) and there was a moderate positive relationship between debt management literacy and personal financial management (Pearson correlation = 0.462 p value = 0.000). The study concluded that employees saved investment out of each payment they received and they saved at least 15 percent of their gross monthly income, a disciplined approach to re-balancing their investment was very important which, the employees had determined how much income they can expect on retirement and employees maximized tax efficiency in their investment portfolio which was essential, employees felt confident that the present health care system can support their needs in the event of a major illness and also that they maximized their retirement/pension contributions each year and that employees paying off the full credit card outstanding amount every month, also paid their mortgage and hire purchase installments on time every month and personal loans offered by financial institutions in the market was a convenient tool for them to use- they could borrow for any reason at any point in time. The study recommended that savings literacy is an important element of financial literacy therefore all employees should learn to save investment out of each payment they received and they save at least 15 percent of their gross monthly income, investment literacy should be considered as a critical factor of personal financial management to all employees as a disciplined approach to re-balancing their investment which is very important and also employees should determined how much income they can expect on retirement and maximize tax efficiency in their investment portfolio which will be essential, all employees should be aware of their retirement plans so as to be confident that the present health care system can support their needs in the event of a major illness and also maximize their retirement/pension contributions each year and that employees should pay off the full credit card outstanding amount and also pay their mortgage and hire purchase installments on time