Effect of financial literacy on personal financial management practices: a case of employees in finance and banking institutions in Kenya.

Abstract

We live in troubled economic times and financial literacy is increasingly becoming, not only a national concern, but also a global concern. Financial markets have increasingly been deregulated with rapid growth of financial products being experienced across many financial markets. In this regard, it is becoming increasingly important for individuals to become aware of their personal finances so as to ensure, them and their families are financially secure in the longrun. This research project focuses on employees of financial institutions in Kenya and the effect of personal financial literacy on their personal financial management practices. Two fundamental aspects, including personal financial literacy and level of education, have been considered in explaining personal financial management practices. A survey methodology was adopted with the design of a questionnaire to capture information among the employees of financial institutions in Kenya. The data collected from the respondents are tabulated and analyzed into logical statements using percentage and mean score analysis. The study revealed that personal financial management practices is greatly affected by personal financial literacy levels and also to some extent, level of education, which was a proxy for other cognitive factors affecting personal financial management practices. The study reveals that employees of financial institutions are no better than other people with their personal financial management practices despite their great exposure to financial literacy. The findings further revealed that high education levels do not necessarily lead to financial literacy but somewhat improve personal financial management practices. Nevertheless, the greatest factor influencing personal financial management practices is personal financial literacy. Lack of it therefore leads to poor personal financial management practices. Therefore, concerted efforts among various stakeholders, including financial institutions, the government and institutions of higher education are important in helping to promote financial literacy in Kenya. Increased financial literacy will go a long way in enabling households, let alone employees of financial institutions, to make informed decisions to budget, save and borrow thus enhance their financial stability, ability to plan for the future and family welfare. This will also improve the financial institutions industry by creating well informed employees and consumers as well, thus reducing the risks for financial institutions.