International Journal of Economics, Finance and Management Sciences

2017; 5(3): 173-181

http://www.sciencepublishinggroup.com/j/ijefm
doi: 10.11648/j.ijefm.20170503.16
ISSN: 2326-9553 (Print); ISSN: 2326-9561 (Online)

Effects of Financial Literacy on Personal Financial

Decisions among Egerton University Employees, Nakuru
County, Kenya
Anne Wangeci Mwathi1, Alex Kubasu1, Nyang’aya Richard Akuno2
1
Department of Accounting, Finance and Management Science, Egerton University, Nakuru, Kenya
2
Department of Agricultural Economics and Agribusiness Management, Egerton University, Njoro, Kenya

Email address:
[email protected] (A. W. Mwathi), [email protected] (A. Kubasu), [email protected] (N. R. Akuno)

To cite this article:

Anne Wangeci Mwathi, Alex Kubasu, Nyang’aya Richard Akuno. Effects of Financial Literacy on Personal Financial Decisions Among
Egerton University Employees, Nakuru County, Kenya. International Journal of Economics, Finance and Management Sciences.
Vol. 5, No. 3, 2017, pp. 173-181. doi: 10.11648/j.ijefm.20170503.16

Received: May 15, 2017; Accepted: May 24, 2017; Published: June 1, 2017

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 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. A sample of 320 respondents was determined using sample
determination table. The target sample size determined was drawn proportionately from each management level. 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 education on financial products available in the
market especially on mortgage, stocks and shares and investment accounts; provision of financial education programs to
employees to enhance their financial skills and concerted efforts to inculcate appropriate attitude to translate acquired financial
skills into practice and decisions-making among the employees.
Keywords: Financial Literacy, Personal Financial Decisions, Nakuru County

the degree to which one understands key financial concepts

1. Introduction and possesses the ability and confidence to manage personal
The global marketplace has become increasingly risky and finances through appropriate, short-term decision-making
unpredictable. It affects the nations and the societies and its and sound, long-range financial planning, while mindful of
main implications include rising costs of goods and services life events and changing economic conditions. Financial
that push people to make well-informed financial decisions literacy has immeasurable significance to both individuals
[8]. Study by [12] defines financial literacy as a measure of and institutions according to [9]. For example, they assert
174 Anne Wangeci Mwathi et al.: Effects of Financial Literacy on Personal Financial Decisions Among Egerton
University Employees, Nakuru County, Kenya

that financially literate consumers make better clients, who in 50% of the employees do not earn a third of their basic pay
turn represent reduced risk for financial institutions and as per the government policy. Further data from the Egerton
contribute to a stronger bottom line. And on the market level University Sacco, where most Egerton University employees
informed consumers play a developmental and monitoring are members show that 10 percent of the employees have
role in the market by weeding out bad practices and defaulted on their loan repayments. The default rate as well
providers. as employees not able to meet the one third on basic pay
In Kenya, the FinAccess 2013 survey results revealed that indicates that Egerton university employees could probably
the levels of financial literacy are low despite the concerted have a financial management problem. The reasons of the
efforts to raise literacy levels by the government and other probable financial decisions problems could be as a result of
stakeholders. The Kenyan government while admitting the the effects of financial literacy or not. It is for this reason that
seriousness of this problem said “education and training in the study purposes to examine the effect of financial literacy
Kenya today is facing various challenges that have negatively on personal financial decisions among employees of Egerton
impacted on its economic development. Unless addressed University as an institution of higher learning.
immediately, these challenges are likely to affect unfavorably
the current and future development in Kenya” [4]. With the 1.2. Research Objectives
entry of new providers and ever-more complex financial i. To determine the effect of financial knowledge on
products and services, with the inclusion of new consumers personal financial decisions among the employees of
to financial markets individuals must make appropriate Egerton University.
decisions. These factors, together with a likely contraction of ii. To determine the effect of financial skills on personal
international capital flows, increase the importance of financial decisions among the employees of Egerton
financial literacy for consumers in developing countries like University.
Kenya. iii. To determine the effect of financial attitude on personal
1.1. Statement of the Problem financial decisions among the employees of Egerton
University.
Today’s complex financial service markets offer iv. To determine the effect of financial literacy on personal
consumers a vast array of products and services to meet their financial decisions among the employees of Egerton
financial needs. The degree of choice requires that consumers University.
be equipped with the financial knowledge and skills to
evaluate the options and identify those that best suit their 1.3. Research Hypotheses
needs and circumstances. [1] argued that having financial H01: Financial knowledge has no effect on personal
literacy skills enables individuals make informed decisions financial decisions among the employees of Egerton
about their money and minimizes the chances of financial University.
mismanagement. However, a study by [17] on the effect of H02: Financial skills have no effect on personal financial
financial literacy on personal financial management practices decisions among the employees of Egerton University.
observes one can still practice financial management H03: Financial attitudes have no effect on personal
behaviors whether or not they are financially literate. The financial decisions among the employees of Egerton
findings from the two studies are contradicting hence the University.
effects of financial literacy on personal financial decisions H04: Financial literacy has no effect on personal financial
cannot be conclusively determined. Moreover, from Egerton decisions among the employees of Egerton University.
University Human Resource Department, it is estimated that

1.4. Conceptual Framework

Figure 1. Conceptual Framework.

 International Journal of Economics, Finance and Management Sciences 2017; 5(3): 173-181 175

2. Literature Review
2.2. The Life Cycle Model
2.1. Financial Literacy Theory
The point of departure of the life cycle model is the
According to [15] framework financial knowledge as a hypothesis that consumption and saving decisions of
form of investment in human capital, and many empirical households at each point of time reflect a more or less
surveys established that people need to know much more to conscious attempt at achieving the preferred distribution of
become informed. The authors show how financial literacy consumption over the life cycle, subject to the constraint
shapes economic outcomes. Financial literacy theory argues imposed by the resources accruing to the household over its
that the behavior of people with a high level of financial lifetime. In theory, as long as people are earning more than is
literacy might depend on the prevalence of the two thinking required to meet basic needs, they may choose to transfer
styles according to dual-process theories: intuition and funds from periods of high income to periods of low income.
cognition. Dual-process theories [3] embrace the idea that This so called smoothing of lifetime income is probably the
decisions can be driven by both intuitive and cognitive most commonly understood reason for saving for retirement
processes. Although dual-process theories come in many during employment. It is based on the idea that it is easier to
different forms, they all agree on distinguishing two main save when there is more money from which a contribution
processing mechanisms or systems. The first system is may be put aside. This idea is important because there is a
characterized as fast, non-conscious, and tied to intuition less than perfect correlation between people’s expenditure
while the second system as slow, controlled, and conscious. and their income. At both ends of the adult life cycle,
The second system is responsible for analytical and rational comparatively low incomes are topped up through borrowing
thinking [7] which is needed to consistently implement a in younger years, and by drawing on savings, pensions and
financially literate investment strategy. investments in retirement.
Financial literacy remains an interesting issue in both The life cycle model is built on several assumptions about
developed and developing economies, and has elicited much human behavior. The lifecycle model hypothesizes that
interest in the recent past with the rapid change in the finance individuals are forward looking in choosing how much of the
landscape. According to [11], financial literacy is the resources that they receive and consume in each period over
combination of investors understanding of financial products their lifetime. This brief statement incorporates four powerful
and concepts and their ability and confidence to appreciate assumptions about people: they are forward looking across
financial risks and opportunities, to make informed choices, the span of their lifetimes; they can predict the financial
to know where to go for assistance, and to take other resources they have over their lifetime (i.e. lifetime income);
effective actions to improve their financial well-being. they understand something about the financial resources they
Financial literacy helps in empowering and educating need in successive periods of their lives; they make informed
investors so that they are knowledgeable about finance in a choices about the use of their financial resource. The simplest
way that is relevant to their business and enables them to use life cycle consumption theory posits that consumers save so
this knowledge to evaluate products and make informed as to transfer resources life stages where the marginal utility
decisions. It is widely expected that greater financial of consumption is highest.
knowledge would help overcome recent difficulties in Given concavity of the utility function, consumers seek to
advanced credit markets [9]. transfer resources from periods of their lives where they earn
Financial literacy prepares investors for tough financial substantial income, to periods where they earn less. These
times, through strategies that mitigate risk such as income paths are estimated separately for workers prior to
accumulating savings, diversifying assets, and purchasing age 65 and retirees age 65+; education groups refer to
insurance. Financial literacy facilitates the decision making household heads having completed less than a high school
processes such as payment of bills on time, proper debt education, high school graduates, and those with at least
management which improves the credit worthiness of some college education. The proponents of this theory
potential borrowers to support livelihoods, economic growth, believe that employees are likely to make financial decisions
sound financial systems, and poverty reduction. It also based on the stage of life in which they are currently in.
provides greater control of one’s financial future, more
effective use of financial products and services, and reduced 2.3. Financial Literacy
vulnerability to overzealous retailers or fraudulent schemes. Financial literacy is a relative and not an absolute concept.
Facing an educated lot, financial regulators are forced to It is possible to define only the basic level of financial
improve the efficiency and quality of financial services [8]. literacy required by everyone in a given society. Study by
According to [12], investors should try to be disciplined and [12] defined financial literacy as the ability to make informed
maintain their investment strategy. Taking these concepts into judgments and to take effective decisions regarding the use
account, financially literate investors are more likely to and management of money. Roy Morgan Research of 2003
deviate from their investment strategy if they rely on their agreed that financial literacy was about people being
intuition. Still, there is also evidence for the superiority of informed and confident decision makers in all aspects of their
unconscious decision-making.
176 Anne Wangeci Mwathi et al.: Effects of Financial Literacy on Personal Financial Decisions Among Egerton
University Employees, Nakuru County, Kenya

budgeting, spending and saving [6]. However, those agree in one thing; that financial literacy is an ability or
measures of financial literacy should reflect individual knowledge to make sound financial decision or judgment
circumstances and be tested against an individual’s needs and regarding a financial issue.
circumstances rather against the entire array of financial Many conceptual definitions of financial literacy include
products and services some of which they may neither use some mention of an ability or aptitude for managing personal
nor need. finances. Report by [2] defines financial literacy as the ability
Financial literacy can be defined as the ways in which to keep track of cash resources and payment obligations,
people manage their money in terms of insuring, investing, knowledge of how to open an account for saving and how to
saving and budgeting [12]. According to [11] financial apply for a loan, basic understanding of health and life
literacy can be conceptualized as understanding personal insurance, ability to compare competing offers, and plan for
finance knowledge and using it. Hence, it could be described future financial needs. According to [16] analysis of
as measuring how well an individual can understand and use individuals needs are considered financially literate if they
personal finance-related information. Report by [10] states are competent and can demonstrate they have used
that financial literacy helps consumers in being prepared for knowledge they have learned in making financial decision.
difficult times by determining risk mitigant strategies, and in As people become more experienced in financial matters they
using financial products effectively, most importantly in increasingly become financially sophisticated and it is
making plausible decisions. In other words becoming predicted that individual become more financially competent.
financially literate refers to possessing knowledge and skills Financial literacy requirements change over the life time of
in order to handle money well. an individual in response to the changing financial needs and
In order to enhance comparability and consistency across are therefore important in the personal decision making due
the evidence base, core concepts must be clearly defined. to the unique nature of the financial products supplied; which
Different researchers and organizations have tried to could be complex, long-term and have wide social coverage
understand the term financial literacy in many different ways. [9]. In this study, this argument will be significant in studying
Although these definitions vary in scope, they have agreed in the target respondents’ financial literacy with regard to the
the characteristics of financial literacy as an ability, financial decisions they make.
knowledge and competency in making financial decisions. It Study by [14] focuses on debt literacy, a component of
is important to note henceforth that before one can be said to financial literacy and defines debt literacy as the ability to
be financially literate, it is assumed that the person has the make simple decisions regarding debt contracts in particular
intellectual framework for understanding, finding, evaluating how to apply basic knowledge about interest compounding
and using information relating to finances, financial products, measured in the context of everyday financial choices. These
risks and any other information related to his financial well- are the parameters that will be used to gauge the financial
being to make sound financial decision with limited risks literacy of the population under study. The key issue will be
[13]. whether the respondents are able to utilize these gauges to
Based upon a review of research studies, the many make informed financial decisions.
conceptual definitions of financial literacy fall into three
categories; knowledge of financial concepts, aptitude and 2.4. Personal Financial Decisions
skill in managing personal finances and confidence and Financial decision making is the thought process of
attitude in planning effectively for future financial needs. selecting a logical financial choice from the available
Report by [2] defines financial literacy as the ability to use options. Financial decisions are greatly influenced by a
knowledge and skills to manage financial resources constant battle between the generating of goods and services
effectively for a lifetime of financial well-being and financial in the marketplace and a person’s limited reserves to acquire
education as the process by which people improve their such goods and services [9]. Amidst current evolutions in
understanding of financial products, services and concepts, financial markets, it’s now becoming increasingly necessary
so that they are empowered to make informed choices, avoid for consumers to be more knowledgeable and competent in
pitfalls, know where to go for help and take other actions to administering their finances. This is because changes in
improve their present and long-term financial well-being. financial markets have resulted in the availability of a wider
Report by [3] defines financial literacy as the ability to selection of financial products and services, making financial
evaluate the new and complex financial instruments and decisions multifaceted and more complicated.
make informed judgments in both choice of instruments and Individuals must therefore make day to day money
extent of use that would be in their own best long-run management decisions to enable better planning and
interests. Study by [12] defines financial literacy as management of life events such as food, education, illness,
knowledge of basic financial concepts, such as the working housing purchase or retirement. The knowledge and skills
of interest compounding, the difference between nominal and related to money management include the ability to balance a
real values, and the basics of risk diversification. A checkbook, prepare a budget and compare prices of different
financially literate population is able to make informed products [4]. Easier access to credit cards, deregulation of
decisions and take appropriate actions on matters affecting financial markets and technological improvements in the way
their financial wealth and well-being. All these definitions financial services are distributed have undoubtedly left many
 International Journal of Economics, Finance and Management Sciences 2017; 5(3): 173-181 177

consumers with more available income to spend [11]. the economy, which constitute persons from various
Saving decisions refer to decisions to defer consumption of backgrounds, have been studied and their financial literacy
income earned today. The life-cycle saving theory [16] posits assessed. Studies have indicated that the average level of
that individuals will follow a hump-shaped saving pattern financial wellness imply high financial literacy score because
over their lifetime. During high earning periods of those with high levels of personal financial wellness report
employment, individuals will save increasing amounts and better performance ratings, less absenteeism, and less work
smooth out expenditure. During low income levels for time used for personal financial matters [6; 3]. It has been
example later on in their retirement year’s people will use up noted that some workers are not financially well because they
their savings to fund their lifetime spending needs. At the have financial problems. If employers can improve personal
macroeconomic level, individual saving benefits the entire financial wellness of workers, such as through financial
nation as it provides the base for long-term investments and education, it may increase productivity, because personal
infrastructure development for every country therefore financial wellness is related to worker productivity.
contributing towards economic growth. Saving also acts as a Study by [16] sought to understand the level of working
hedge for nations against economic downturns and financial Australians’ financial knowledge and preparedness for
crisis. One of the avenues to boost national saving is by retirement. A random sample of 802 working Australians
encouraging individuals to increase personal saving. found alarmingly low levels of financial literacy. Only half of
Investment on the other hand is putting money into an the respondents surveyed had given, at best, some thought to
asset with the expectation of capital appreciation, retirement, but made very little, if any, preparations for it.
dividends, and/or interest earnings. Most or all forms of Correspondingly, as financial literacy levels decline,
investment involve some form of risk, such as investment in anticipation of a lifestyle in retirement that is far less
equities, property, and even fixed interest securities which comfortable than now increases. Financial literate consumers
are subject, among other things, to inflation risk. It were thus more confident in making personal financial
generally does not include deposits with a bank or similar decisions and making decisions on behalf of the employer.
institution. A good investment strategy will diversify the Study by [11] personal financial literacy examined the
portfolio according to the specified needs. Investing in the level of personal financial literacy of academic support-
stock market for example, provides an opportunity to take employee and analyzed their spending and saving behaviors.
advantage of the equity premium and to benefit from risk The samples taken were for 400 academic support-employees
diversification. In addition, it has been argued that from Chiang Mai University. Results showed the overall
households are either simply unaware of the investment mean of correct answers for the survey was about 36%.
opportunities in the stock market or refrain from investing Although the questions included in the survey were basic,
in stocks due to a lack of trust [6]. However, appropriate none of the mean scores for each area of general knowledge,
financial decisions must be made since some households debt, risk, and investments was above 44%. These levels of
may in fact be better off not investing in the stock market financial literacy are low. It is also found that participants
due to excessive trading or bad timing of transactions as with less knowledge held wrong opinions limiting their
vast majority of households that invest in the stock market ability to make informed decisions. The academic support-
follow very passive investment strategies [1]. employees knowledge of personal finance was low and
From time to time individuals may require borrowing needed to improve.
money in order to meet their needs. Debt management Study by [6] investigated financial literacy of university
decisions are made to help consumers avoid over professors’ a sample of 94 professors was selected randomly
indebtedness. To be able to perform calculations, individuals from a population of 550 professors. Data was collected
require at minimum, an understanding of compound interest using questionnaires was analyzed using statistical analyses
and the time value of money. Decisions about how much to such as correlation, independent samples T-test and ANOVA.
accumulate and how much to borrow to be able to smooth The results showed that university professors lacked essential
consumption over the life-cycle also require an financial information for handling their daily financial issues.
understanding of the working of interest rates. This means There was a relationship between financial literacy and
that individuals are faced with complex situations that require marital status characteristics, and finally there was no
them to be equipped with appropriate knowledge and skills. significant relationship between variables such as age,
This therefore means that the actual requirements for making education and employment status with financial literacy.
personal decisions are demanding since individuals have Study by [8] argued that online investors should have more
must collect information, interpret the information and make knowledge than normal investors to succeed in the securities
forecasts about many variables [13]. markets, because they are more likely to be surrounded by
financial misinformation and manipulation. Therefore, the
2.5. Empirical Review authors examined investment literacy of 530 online investors
There is an ever-rising interest in the financial literacy and the difference in the literacy level among various groups
from academic community, international organizations and of participants using age, income, gender, education, and
recently governments have embarked on finding ways of previous online trading experience as variables. The study
raising its citizen’s financial knowledge. Different sectors of demonstrated that the level of financial literacy varied with
178 Anne Wangeci Mwathi et al.: Effects of Financial Literacy on Personal Financial Decisions Among Egerton
University Employees, Nakuru County, Kenya

people’s education, experience, age, income, and gender. distributions of the respondents in the organizations’
Particularly, women had much lower financial literacy than management structure as well as the characteristics of the
men and older participants performed better than younger target population. The target population was 1998 employees
participants. As well, online traders had higher knowledge categorized into strata: Lower level=541, Middle level=1447
than others. Moreover, investors with higher income had and Top level=10. A sample of 320 respondents was
more knowledge in investment than those with lower income, determined using [7] sample determination table. The target
and investors with college or higher degree performed better sample size determined of 320 respondents was drawn
than those with low education. proportionately from each management level. A random
Study by [11] used logit models to predict financial sample from each stratum was taken in a number
literacy using the 2003 ANZ Survey of Adult Financial proportional to the stratum’s size when compared to the
Literacy in Australia. The results indicate that all other things population. The study used structured questionnaires to
being equal, males, older persons, people whose occupations collect data. The researcher collected primary data using
are professional, business owners and executives, small structured questionnaires which were administered to the
business and farm owners and semi-skilled traders, those respondents by drop and pick method.
with a university education and those with higher levels of The questionnaires were pilot tested on 10 employees,
income, savings and mortgage debt have a greater likelihood before they were administered in the actual study. This
of a high level of financial literacy. Conversely, females, the helped refine the questions before they were administered in
unemployed and other non-working persons, farm workers, the actual study. Report by [11] pointed out that validity of an
and those with low educational level had low levels of instrument is improved through expert judgment. The
financial literacy. reliability of data was estimated using Cronbach Alpha
Study by [9] on the relationship between financial literacy coefficient. The reliability of data was estimated using
and retirement readiness included 989 observations taken Cronbach Alpha coefficient. Cronbach alpha reliability
from the American life panel. Panel C offered insight into coefficient normally ranges between 0 and 1; and higher
why financial literacy patterns vary by age, educational alpha coefficient values are more reliable. The generally
attainment and sex. The results indicated that the respondents agreed lower limit is 0.7 (Nunnally & Bernstein, 1994). The
age 50+ were consistently better informed. Differences in results were as presented in table 1
financial literacy by education were however more striking
with those with less than college education much more likely Table 1. Reliability Analysis.
to respond incorrectly, especially to questions on compound Cronbach Alpha
Variables No. of items
interest, the time value of money, and inflation. Women on Coefficient (α)
the other hand, exhibited much lower levels of financial Financial knowledge 12 0.919
literacy than men did. Financial skills 6 0.798
According to [4, 3] examined the correlation between Financial attitudes 7 0.702
financial knowledge and actual behavior among the general Financial decisions 21 0.762
All questionnaire items 46 0.876
population in the United States. They measured knowledge
using the 28-question Financial IQ measures that were
The Cronbach Alpha Coefficient results in table 1 were
included in the Survey of Consumer Finances. The results
greater than the threshold of 0.7, and therefore the
indicated significant correlations between credit management
questionnaire was considered reliable.
scores and scores on the composite measure of financial
The Pearson Moments Correlation and the Multiple
knowledge which showed a strong relationship between
Regression models were used to test the relationship between
financial knowledge and the likelihood of engaging in a
financial literacy aspects (financial knowledge, financial
number of financial practices: paying bills on time, tracking
skills, and financial attitudes) and personal financial
expenses, budgeting, paying credit card bills in full each
decisions while multiple regression analysis was used to
month, saving out of each paycheck, maintaining an
determine the overall effect of financial literacy on personal
emergency fund, diversifying investments, and setting
financial decisions.
financial goals.

3. Research Methodology 4. Results

4.1. Financial Literacy Indices
This study adopted a descriptive survey research design.
Data was collected regarding the effect of financial literacy With respect to the level of financial literacy among
on personal financial decisions from a selected sample of employees, based on the components of financial literacy
respondents. The target population for this study consisted of (Financial knowledge, financial skills, financial attitude),
all employees of Egerton University. Stratified sampling, table 2 gives the overall index. These findings indicate that
proportionate sampling and random sampling techniques level of financial literacy among employees was generally as
were used to determine the sample. The sampling techniques evidenced by average at 3.3 on a 1 to 5 rating.
in this study were considered based on the different
 International Journal of Economics, Finance and Management Sciences 2017; 5(3): 173-181 179

Table 2. Financial Literacy Indices. average skills in making personal financial decisions.
Financial Literacy Index Std. Deviation
Table 3. Personal Financial Decision Indices.
Financial Knowledge 3.49 1.2
Financial Skills 3.54 1.1 Personal Financial decisions Index Std. Deviation
Financial Attitudes 2.91 1.16 Money Management 3.20 1.12
Overall Index 3.3 1.15 Savings and Investment 3.54 1.1
Debt Management 3.42 1.16
4.2. Personal Financial Decision Indices Overall Index 3.39 1.12

Findings on financial decision gave indices of 3.20, 3.54 4.3. Financial Literacy and Personal Financial Decisions
and 3.42 for personal financial decisions, money
management, savings and investment and debt management The study used correlation analysis to establish the
respectively as presented in table 3. The overall index was relationship between financial literacy and personal financial
3.39. The above findings indicate that the respondents had decisions. The findings were as presented in table 4 below
Table 4. Financial Literacy and Personal Financial Decisions.

Independent Variable Dependent variables

Money Savings & Personal Financial
Debt Management
Management Investment Decisions
Pearson Correlation .209** .333** .210** .346**
Financial Knowledge
Sig. (2-tailed) .000 .000 .000 .000
Financial Pearson Correlation .478** .687** .035 .598**
Skills Sig. (2-tailed) .000 .000 .563 .000
Pearson Correlation -.003 .063 .212** .105
Financial
Sig. (2-tailed) .960 .295 .000 .080
Attitude
N 278 278 278 278

**. Correlation is significant at the 0.01 level (1-tailed).

According to the correlation results findings (Table 4), According to the correlation results findings (Table 4),
financial knowledge was found to be positively and financial attitude was found to be negatively related to
significantly related to money management (r =.209); savings money management (r = -.003,); positively related to savings
and investments (r=.333) and debt management (r =.210). and investments (r=.063,) and positively related to debt
Further, according to the study findings financial knowledge management (r =.212). While, financial attitude was
was positively and significantly related to combined personal positively but not significantly related to combined personal
financial decisions components (r=.346). The r value of financial decisions components (r=.105). The r value of
0.346 indicates a positive correlation between financial 0.105 indicates a positive but not significant correlation
knowledge and personal financial decisions among between financial attitude and personal financial decisions
employees of Egerton University. The null hypothesis is thus among employees of Egerton University. The null hypothesis
rejected. The significance value of 0.000 which is less than is thus not rejected. Therefore, it was concluded that financial
0.05 indicates that the relationship is statistically significant. attitude was not statistically significant to personal financial
According to the correlation results findings (Table 4), decisions. The results can be interpreted to confirm [12]
financial skills was found to be positively and significantly assertions that there was a strong negative statistical
related to money management (r =.478) and savings and relationship between personal financial attitude and
investments (r=.687). The findings indicate that financial borrowing through a credit card. These results concluded that
skills was found to be positive and not significantly related to improving personal financial attitude through education and
debt management (r =.035). The results of the study affirms a practice reduces dependence on credit cards.
study by [6] indicating that financial literacy gives consumers
and households’ skills necessary to assess the suitability of 4.4. Multiple Regression Analysis
financial products and investments. It ensures that financially Multiple regression analysis was carried out between
literate people have a greater capacity to save for retirement financial literacy (financial knowledge, financial skills, and
and do so. A better-informed consumer saves for the future, financial attitudes) and personal financial decisions. The
for retirement and for unforeseen circumstances and results were as presented in table 5-
emergencies. The study also sought to determine the
relationship between financial skills on combined personal Table 5. Regression Model Summary.
financial decisions. Findings indicate that financial skills was
R Adjusted R F- Sig. F-
positively and significantly related to combined personal Model R
Square Square ANOVA change
financial decisions components (r=.598). Therefore, it was 1 .616a .380 .373 .000
concluded that financial skills have statistically significant
positive relationship with personal financial decisions. Predictors: (Constant), Financial attitude, Financial skills,
Financial knowledge
180 Anne Wangeci Mwathi et al.: Effects of Financial Literacy on Personal Financial Decisions Among Egerton
University Employees, Nakuru County, Kenya

Based on the summary regression model, the results captured by the model. The adjusted R2 indicates that it is
indicate a coefficient of determination of 0.380 (R2=0.380) closer to the R2 therefore there is no much variation existing
the percentage variation in the dependent variable being between the two thus proving the coefficient of
explained by the changes in the independent variables. This determination. Consequently, the null hypothesis that
implies that 38 percent of the total variation in personal financial literacy has no effect on personal financial decisions
financial decisions is explained by financial literacy. The among the employees of Egerton University was thus
remaining 62 percent is explained by other factors, not rejected.
Table 6. Multiple Regression Analysis.

Un-standardized Coefficients Standardized Coefficients Collinearity Statistics

T Sig.
B Std. Error Beta Tolerance VIF
(Constant) 36.528 3.321 10.999 .000
Financial knowledge .144 .048 .153 2.972 .003 .857 1.166
Financial skills 1.152 .108 .544 10.713 .000 .877 1.140
Financial attitude .054 .119 .022 .451 .391 .976 1.025

From table 6, the following model was developed for the enough among the employees to considerably influence
study financial decisions (especially saving & investments and debt
γ = 36.528 + 0.144x1 +1.152x2 + 0.054x3 management).
Where On the effect of financial attitudes and personal financial
γ = Personal financial decisions, decisions, the study concluded that financial attitude has very
x1 = financial knowledge, low influence on personal financial decisions. It was notable
x2 = financial skills, and that financial attitude influences to a very small extent
x3 = financial attitude savings and investments decisions and to a moderate extent
on debt management decisions. Financial attitude were found
4.5. Conclusions to negatively influence money management decisions. These
The main purpose of the study was to evaluate the effect of findings suggest that higher levels of financial attitude among
financial literacy and personal financial decisions among employees did not translate into appropriate personal
employees of Egerton University, Nakuru County. In this financial decisions.
regard, the study examined the financial literacy in terms of On the basis of correlation and regression results, the study
financial knowledge, financial skills and financial attitudes concluded that financial literacy influences personal financial
and their effect on personal financial decisions in terms of decisions among employees of Egerton University. The
money management, savings and investments, and debt outcomes of financial decisions have significant implications
management. for an individual’s financial security and standard of living. A
On the basis of descriptive findings, it can be concluded person with a good level of financial literacy is likely to be
that although the overall level of financial knowledge among better placed than someone without those skills and
employees was generally moderate, financial knowledge was knowledge to manage their financial affairs prudently. It was
higher among study respondents on products such as Mpesa, evident that financial attitude did not have statistically
savings and current accounts products but very low on significant effect on personal financial decisions.
financial products like investments & mutual trusts, stocks & 4.6. Recommendations
shares as well as mortgages. Furthermore, the study
concludes that the relationship between financial knowledge It was evident from the study findings that overall level of
and financial decisions was generally positive and a financial knowledge among employees was generally
significant. This implies that adoption of appropriate moderate. This was attributed to lack of knowledge on
knowledge of financial products would translate into financial products like investments & mutual trusts, stocks &
adoption of expected financial decisions. Nevertheless, the shares as well as mortgages. This therefore calls for financial
employees of Egerton University have relatively lower education on financial products available in the market
financial knowledge of critical products to attain higher especially on mortgage, stocks and shares and investment
levels of financial decision-making. accounts.
With regard to financial skills, the study concluded that With regard to financial skills, it was notable the level of
financial skills have significant influence on personal financial skills was low especially on negotiating for better
financial decisions. It was however notable the level of rates of return on investment products and relying on the
financial skills was low especially on negotiating for better advice from professional expect on financial matters. The
rates of return on investment products and relying on the study therefore recommends provision of financial education
advice from professional expert on financial matters. In programs to employees to enhance their financial skills.
addition, it was evident that the overall financial skills among These programs can be implemented by introducing some
employees were found moderate. These findings suggest that seminars that should help employees understand the basics of
adoption of appropriate financial skills was not sufficient financial decision making.
 International Journal of Economics, Finance and Management Sciences 2017; 5(3): 173-181 181

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