Effect of financial literacy on personal financial management practices: a case study of employees in finance and banking institutions
Financial education is growing in leaps and bounds in the western world because of the financial intricacies that have increased in the world economy. Africa is not exempted as it is part of the global village. Financial products have increased faster than the knowledge required to acquire these products. The global financial crisis witnessed in 2008/9 testifies to this fact. Fundamentally, lack of financial literacy lured entrants into the mortgages market that in the long run proved costly when interest rates fluctuated to their detriment. The change in the financial scenario put many families in jeopardy and many were declared bankrupt. This research sought to determine whether financial literacy had any effect on personal financial management practice. The population of the study comprised all employees perceived to have training in . finance from financial institutions listed on the Nairobi Stock Exchange. These employees are assumed to be financially literate by virtue of their training and nature of work. A second data set was collected from non-financial institutions to establish whether a difference exists between the two groups when it comes to personal financial management practices. Simple random sampling technique was used to select respondents from each institution. A self administered questionnaire was delivered to the respondents and collected after completion. Data was analyzed using the Statistical Packages for social Sciences (SPSS ver 12). The Students t-test was used to examine the data with the objective of determining whether there is a significant relationship between financial education (profession) and personal financial management practices. This research shows that working in a finance and investment environment does not make one have drastically different financial behaviors compared to those who do not. The study reveals that those who are financially educated and those who are not exhibit relatively the same personal financial management patterns albeit in different magnitudes. For example those who are financially educated registered a mean of 3.70 compared to 3.60 for those who are not financially educated on the issue of saving/investing out of each payment. Another fact observed from the study, is that those presumed to be financially educated cluster around a few financial management practices, a trend similar to those who are not financially literate. They do not give the same prominence to other financial practices that may contribute to their financial well being. In conclusion, the results indicate that financial literacy has a positive influence on personal financial practices. The study further observes that there is no significant difference between those who are financially literate and those who are not.