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Home / Journals / Journal of Business and Socio-economic Development / Volume 1 Issue 2

/ Financial literacy and personal retirement planning: a socioeconomic approach

Financial literacy and personal retirement planning: a

Abstract
socioeconomic approach
Introduction Kulondwa Safari, Charity Njoka, Mugisho Guershom Munkwa 
Literature Journal of Business and Socio-economic DOWNLOADS

review Development
Methodology ISSN: 2635-1374  14370

Article publication date: 16 July 2021

Research Issue publication date: 28 October 2021
9ndings

Conclusion
and
recommandati  PDF (360 KB)

Abstract
Purpose
The purpose of this study was to investigate the e8ect of 9nancial
literacy on personal retirement planning in Bukavu city in the
Democratic Republic of the Congo (DRC), which is a Sub-Saharan
underdeveloped country with a weak pension and social security
system.

Design/methodology/approach
This study used a structural equation modeling and a sample of
361 public sector employees selected in Bukavu city in the DRC.
The data were collected through a survey questionnaire, and the
data were analyzed using SPSS and SMART PLS software.

Findings
The results from the study revealed that 9nancial literacy has a
signi9cant impact on personal retirement planning. Two
constructs of 9nancial literacy, respectively, computation
capability and 9nancial knowledge were found to have a
signi9cant impact on personal retirement planning, while 9nancial
education and attitudes toward 9nancial products were found
not signi9cant in explaining personal retirement planning.

Practical implications
The 9ndings from this study can be used by policy makers in the
DRC to design socioeconomic programs, aiming to increase the
level of 9nancial literacy in the country and awareness on
personal retirement planning.

Originality/value
The reviewed studies were based mostly on developed countries,
and countries were the social security system works e8ectively.
We have not found a study on 9nancial literacy and retirement
planning that has been conducted in the DRC, which is a country
with speci9c characteristics compared to developed countries.

Keywords

Financial literacy Personal retirement planning

Structural equation modeling Democratic republic of the Congo

Citation
Safari, K., Njoka, C. and Munkwa, M.G. (2021), "Financial literacy
and personal retirement planning: a socioeconomic approach",
Journal of Business and Socio-economic Development, Vol. 1 No. 2,
pp. 121-134. https://doi.org/10.1108/JBSED-04-2021-0052

 Download as .RIS

Publisher: Emerald Publishing Limited

Copyright © 2021, Kulondwa Safari, Charity Njoka and Mugisho
Guershom Munkwa
License
Published in Journal of Business and Socio-economic Development.
Published by Emerald Publishing Limited. This article is published
under the Creative Commons Attribution (CC BY 4.0) licence.
Anyone may reproduce, distribute, translate and create derivative
works of this article (for both commercial and non-commercial
purposes), subject to full attribution to the original publication
and authors. The full terms of this licence may be seen at
http://creativecommons.org/licences/by/4.0/legalcode

Introduction
According to the World Bank (2019), in the Democratic Republic
of the Congo (DRC), the general literacy rate for adults was
estimated to be 77.04% in 2016. This indicator measures the
number of individuals aged 15 and above who can read and write
with understanding a short simple communication about their
daily life. However, 9nancial education programs have been
inexistent in the country. The government has approved a
national 9nancial education program in 2018. This program aims
at providing the Congolese population with the 9nancial
knowledge that will have a positive e8ect on their life through
improved 9nancial decisions. The implementation of the national
9nancial education is slow, and this could result in poor 9nancial
decisions-making among the population. The World Bank is
expected to assist the Central Bank of Congo in putting in
practice the important measures to ensure the national 9nancial
education program is executed (World Bank, 2018).

According to Luzolo (2016), Sub-Saharan Africa is the African

zone with the lowest social security coverage rates in the world.
The social security coverage is 15.6%, while the global average
rate is 40.2%. Social protection systems need to be strengthened
in Africa for the bene9t of its population. Millions of older Africans
people who worked during their active age are in precarious
situations with low pensions and need better social security. They
are confronted to poor life conditions while they were employed
during their working age.

Luzolo (2016) shows that in the DRC, the CNSS (Caisse Nationale
de Sécurité Sociale) which is the public institution in charge of
collecting workers contributions for retirements o8ers low
retirement bene9ts. A Congolese retiree receives 1.67% of his
contributions during his entire period of retirement. It is one of
the lowest rates in Central Africa and in Sub-Saharan Africa. The
republic of Congo o8ers 2.5%, the Gambia 7.5% and Morocco
6.25%.

In a study carried out in Bukavu city, the DRC, Cibangala (2019),

shows that 9nancial literacy impacts signi9cantly the 9nancial
well-being of individuals. Apart from positive social attitudes,
individuals that come from a family with a high level of 9nancial
literacy are found to have better risk attitudes toward 9nancial
plans and 9nancial management. They consider that planning for
their projects and for future expenses improve their 9nancial
stability and well-being.

Lin et al. (2017) and many other authors demonstrated that

9nancial literacy a8ects positively retirement planning. The more
9nancially literate an individual is, the more he plans for his
retirement. While the population is waiting for the
implementation of the national 9nancial education program, it is
important to explore the e8ect of 9nancial literacy on personal
retirement planning among public sector employees in the DRC.

This study intends to investigate whether 9nancial literacy a8ect

retirement planning decisions among public sector employees in
DRC.

The present study proceeds as follows: the 9rst section presents

the literature review, the second section presents the
methodology and the last section presents the research 9ndings.

Literature review

Theoretical review
This section presents the theory of life cycle that is the
underpinned theory of this research.

Life cycle theory

Life cycle theory was introduced by the Modigliani through two
research papers published in the 1950. The theory postulated
that people make informed choices about the amount to allocate
for expenses for each period of their life. However, these
decisions are limited by the availability of resources that
individuals can access during their life. By building up and
running down assets, employees can make 9nancial plans for
their retirement and adapt their expenses to their needs at each
stage of their living years. The life cycle story is the one in which
the resource of the country circulate; the young individuals have
few resources, the middle-aged individuals have more and the
highest level of wealth is possessed by individuals who are about
to retire. Through their retirement period, retirees sell o8 their
assets to get food, accommodation and entertainment (Deaton,
2005).

Blau and Blau (2007) show that during the retirement period,
consumption expenses are reduced in households, and life cycle
theory can explain that situation. Bodie et al. (2007) emphasize
that decisions such as the allocation of portfolios for retirement
investments and the subscription to a retirement insurance plan
are guided by the life cycle theory. The present study intends to
test whether during the age before the retirement period
individuals change their retirement planning behavior in DRC
based on the life cycle theory.

Empirical review
This section presents the previous studies which investigated the
relationship between 9nancial literacy and retirement
investments.

Financial knowledge and retirement planning

Rooij et al., 2011 assessed the impact of 9nancial literacy on
retirement preparedness in the Netherlands. This study
examined how 9nancial knowledge impacts retirement
preparedness in the Netherlands. Multivariate ordinary least
square was applied, and the results revealed that 9nancial
knowledge a8ect signi9cantly retirement planning; therefore,
individuals with high 9nancial knowledge have a high probability
to plan for retirement. The research is based on Netherlands. The
current research is centered on the DRC.

Arrondel (2013) assesses the relationship between 9nancial

literacy and 9nancial planning in France. Using ordinary least
square, the author 9nd out that some subpopulations have low
degree of 9nancial literacy compared to others, women, young,
old and people with low degree of education have a low degree
of 9nancial knowledge. The di8erences in 9nancial knowledge
were found to be associated with retirement planning. The
current study is based on the DRC, unlike the previous study
which is based on France.

Bongini et al. (2019) study university students’ involvement in

retirement planning. The aim of the study is to explore the factors
predicting university student to have intentions to invest in a
pension funds. The theory of planned behavior and ordinary least
square step-wise multiple regression analysis is used. The results
reveal that theory of planned behavior predictors, pension
knowledge and money management inkuence positively the
intention to invest in a pension fund. However, this research
includes only youth in the sample; the current study included
individuals who are close to the retirement period in the DRC.

H1. The level of 9nancial knowledge inkuences personal

retirement planning among public sector workers in Bukavu
city, the Democratic Republic of the Congo

Computation capability and retirement investment

Klapper et al. (2011) examine the link between 9nancial literacy
and retirement planning in Russia. Using a probit model, the
results revealed that only 36% of respondents who have
computational capability plans for their retirement. These
individuals could understand interest compounding and inkation.
Financial literacy was proved to have a signi9cant e8ect on
retirement planning and pension funds participation. However,
this study is centered on retirement planning and pension funds
participation in Russia. In addressing this gap, the current study
focuses on an underdeveloped country, the DRC and includes
three main constructs of 9nancial literacy: 9nancial education,
9nancial knowledge and computation capability.

Anderson et al. (2017) investigate the relationship between

precautionary savings, retirement preparedness and
misperceptions of 9nancial literacy. LinkedIn members were
surveyed, and questions were asked to assess the level of
computation capability. The probit model was applied, and
results reveals that computation capability as a construct of
9nancial literacy and planning for retirement were found to be
positively correlated. Individuals who have a good command in
computation are more likely to make plans for their retirement.
However, this study is based on employees selected on Linkedin
without di8erentiating the sector of employment. The present
study addresses this gap in investigating the case of public sector
employees.

Sekita (2015) explores the impact of 9nancial literacy on

retirement planning in Japan. The purpose of this study is to do
an assessment of the level of 9nancial literacy in Japan, to
determine which group in Japan has a low level of 9nancial
literacy and to determine the link between 9nancial literacy and
retirement planning. A multivariate analysis, a simple linear
probability model regression were used to determine the
relationship between 9nancial literacy and retirement planning as
well as socioeconomic characteristics. The results revealed that
individuals who had a good computation capability of interests
and inkation are more likely to have a saving plan for retirement.
The lowest degree of 9nancial literacy was observed among
women, the young and people with a low income and a low
degree of education. The research was based on Japan, thus the
current study 9lls that gap in studying 9nancial literacy and
retirement planning in the DRC.

Lusardi et al. (2011) studied the e8ect of 9nancial literacy on

retirement preparedness in the United States. The authors used
a multivariate model, an ordinary least squares regression and
9nd out that individuals with high score of 9nancial literacy are
the ones who plans for retirement. In a set of measures of
9nancial literacy, a good level of computation capability of
inkation and interests are 9nd to have a positive impact on
retirement planning. However, this study is centered on the
United States of America; the present study 9lls that gap in
carrying out an investigation on DRC.

H2. Computation capability has an inkuence on retirement

investment of public sector workers in Bukavu city, the
Democratic Republic of the Congo.

Financial education and retirement investment

Folk et al. (2012) investigate the impact of 9nancial education on
retirement 9nancial planning. The author used a sample of 404
individuals in the preretirement period and hierarchical
regression analysis. The results from the study reveal that
9nancial education have a signi9cant impact on 9nancial
retirement planning. Individuals who attend 9nancial education
programs are found to adopt a planning behavior and are more
interested in preparing a future 9nancial well-being. However, the
study was based on Malaysia. In addressing the research gap, the
current study is based on the DRC.

The study of Lusardi and Mitchelli (2007) analyzes the factors

behind lack of retirement preparedness in the United States of
America. Financial literacy was tested in the study as a factor that
can hinder retirement planning. While a large interests have been
showed by nonpro9ts organizations and governments to
enhance 9nancial literacy level, the study reveals that 9nancial
literacy have a positive e8ect on retirement savings. The more an
individual is 9nancially literate, the more he constitutes savings
for his retirement expenses. However, this study focuses only on
the factors that hinder retirement planning. The current study 9lls
that gap in investigating factors that increase or decrease the
probability to plan for retirement.

Clark et al. (2003) analyze the e8ect of 9nancial education on

retirement savings. The author investigates a group of individuals
in two surveys carried out before and after attainment of a
9nancial education program. The 9nding from the study reveals
that after attending a 9nancial education event, individuals are
more likely to change their retirement saving plans. They are
more interested in 9nding out the available means that can be
used to save for the retirement. However, this study is limited to
retirement savings. This gap is addressed in the current empirical
study in including also retirement investments.

Ntalianis and Wise (2011) explore the impact of 9nancial

education on retirement planning. The study shows that
governments do not have the capacity to o8er enough retirement
income in many countries, and access to 9nancial education have
a positive impact on retirement planning. Attending seminars,
receiving written communications and online information are
found to be e8ective methods to access 9nancial education.
Recommendations from the study state that individuals should
make e8orts to access 9nancial education for a better retirement
planning. This study is limited to 9nancial education. The present
study includes 9nancial knowledge and computation capability to
explain retirement planning.

In the United States of America, Lusardi and Mitchell (2017)

investigates the impact of 9nancial literacy on retirement
preparedness. Using the American life panel measures of
9nancial literacy, the results prove that 9nancial knowledge
acquired in schools before entering the labor market has a
positive e8ect on planning for the retirement. It is therefore
important to design education programs for youths as a way to
equip them with the necessary 9nancial knowledge that will
impact positively their 9nancial well-being later in their
retirement. However this study is centered on the United States
of America. The present study aimed at 9lling this gap in studying
the case of an under developed country, the DRC.

H3. Financial education inkuences personal retirement planning

among public sector employees in Bukavu city, the
Democratic Republic of the Congo.

Risk attitudes toward 9nancial products and retirement

investment
Dummann (2008) investigates the relationship between
retirement saving and attitudes toward 9nancial intermediaries in
Germany. Using a life cycle hypothesis, the 9ndings from the
study show that attitudes toward 9nancial intermediaries and
products have a signi9cant e8ect on retirement saving.
Subscribing to life insurance products is inkuenced by household
risk attitudes toward 9nancial products. Individuals avoid risky
investments because they expect to lose a signi9cant amount of
money. A low level of risk aversion is positively associated with old
age savings behavior. However, this study is limited to retirement
savings. The present study addresses this gap in verifying how
attitudes toward 9nancial products a8ect personal retirement
planning.

Satria and Hutabarat (2020) explore the e8ect of 9nancial

literacy on 9nancial planning for retirement using a sample of 120
university lecturers selected in Indonesia. To achieve the purpose
of the research, a linear regression model was applied to test the
relationships. The results from the study show that attitudes
toward retirement products are signi9cant in making personal
plans for the retirement. Individuals with positive attitudes
toward retirement products are more likely to make pension
9nancial plans. This study focuses on university lecturers who are
individuals with high education levels and who are more likely to
be 9nancially literate. This gap was 9lled in the present study that
was based on public sector employees from many domains.

Meir et al. (2016) analyze the e8ect of 9nancial literacy and

retirement planning in Israel. An online survey was conducted on
501 Israelis randomly, and multiple ordinary least square
regressions were applied. Results show that individuals with low
risk aversion toward retirement products are more likely to plan
for their retirement. An individual's risk aversion attitude is
proved determine 9nancial decisions such as retirement saving
options and retirement investment options. This study did not
show the di8erences of risk attitudes depending on the age of
individuals. The present research addresses that gap in
investigating retirement plans in the preretirement period.

H4. Risk attitudes toward 9nancial products inkuences personal

retirement planning among public sector workers in Bukavu
city, the Democratic Republic of the Congo.

Methodology

Introduction
This section presents subsequently our research design, data
collection procedure, and the operationalization and
measurement of variables.

Research design
This section presents the empirical model used, the population
as well as the process of collecting data.

Empirical model
Many variables are associated with retirement investments.
However, these variables are not observed in isolation, and so it
is useful to be able to carry out a multivariate analysis to
understand the full picture. In this study, the measurement of
9nancial investments chosen is behavioral due to the fact that
people do not like to disclose the exact amount invested. This
fact drives this study to adopt a behavioral approach and hence
give a latent nature to our dependent variables.

Referring to the studies of Jime (2018) and (Katoroogo, 2016),

structural equation modeling approach will be used to get the
results for the present research. During the past years,
behavioral 9nance researchers have increased their interest in
the application of structural equation modeling (SEM). Historically,
the research areas where multivariate techniques have been
used were the behavioral and biological sciences. Nowadays,
interest in multivariate methods has now expanded to many
other 9elds of research among others business and 9nance
(Alvin, 1995). SEM is a concept utilized to describe a growing and
increasingly general set of statistical methods for modeling data.
The biggest strength of SEM is its capacity to model links between
latent variables; these are the unobserved constructs of which
observed variables may be for them misrepresentative.

Empirical model formulation and measurement

We have selected two variables (constructs) to measure personal
retirement planning, these are savings and assets.

where:

PRP= Personal retirement planning

FN= Financial knowledge
CP= Computation capability
FE= Financial education
ATFP = Attitudes toward 9nancial products (see Figure 1).

Data collection procedure

A sample size of 361 individuals was purposively selected. The
necessary data were collected through a survey questionnaire
that had two parts; the 9rst part had questions on the
socioeconomic pro9le of respondents, while the second section
had items questions on retirement planning and 9nancial literacy
constructs. Survey questionnaire were submitted to respondents
at their work place by a team of enumerators hired and trained
for that purpose. Enumerators used a recommendation letters
issued by Université Evangélique in the opces of di8erent public
institutions to request interviews with workers.

Operationalization and measurement of variables

The table below describes the di8erent variables selected for this
study (see Table 1).

Research 9ndings

Socioeconomic characteristics of respondents

This section presents the characteristics of the study
respondents.

The results in Table 2 show that most respondents were aged

between 50 and 60 years (60.4%) and the rest (39.6%) is
constituted by individuals aged between 60 and 65 years This
shows that most of the respondents are in the period close to
the retirement age which is 65 years in the Democratic Republic
of the Congo. The majority of the study respondents were male
(83.9%), Females represented 16.1% of respondents. Married
individuals constitute the majority of the study respondents
(90.3%), and divorced represent the minority of or respondents
(3%). The majority of the study respondents are educated, 69.0%
have a bachelor degree and 21% have a high school level. This
can be explained that the respondents are constituted with
public sector workers, and one of the requirements to work for
the public sector is to hold a school degree or certi9cate. The
results show that for the majority of the study respondents
(60.7%) their earnings are below 3,60,000 Congolese Francs, and
only the minority have a salary above 36,00,000 Congolese
Francs.

Descriptive statistics of the study variables

This section presents the descriptive statistics of the latent
variables used in this study which have items measured by a
Likert scale as follows: 1. strongly disagree, 2. disagree, 3. neither
agree nor disagree, 4. agree and 5. strongly agree.

The results in Table 3 show that in average, the majority of the

study respondents have positive attitudes toward personal
retirement planning or have invested or saved for retirement
purposes a (With mean = 4.16). The majority of public sector
employees in Bukavu city, DRC have a low level of 9nancial
knowledge with all the items related to 9nancial knowledge with
an average of 3.25 which is below 4. The majority of respondents
disagreed (Average below 3) on questions related to computation
capability; this shows that the level of computation capability of
public sector employees in Bukavu city, DRC is low. Most of
respondents disagreed on questions related to 9nancial
education showing that the level of 9nancial education of public
sector employees is low (Average below 3) in Bukavu city, DRC.
There is a need to promote 9nancial education programs for the
pro9t of the population of DRC. The level of knowledge of
9nancial products is low (Average below 3) among public sector
employees in Bukavu city, DRC. This situation should be improved
by 9nancial education programs in order to enable individuals to
make sound 9nancial decisions, for instance to make 9nancial
plans for retirement purposes.

Structural equation modeling results

This section presents the steps followed to estimates and to 
validate the 9nal structural equation model used to respond to
the research hypothesis.