Financial Literacy and Saving for Retirement among Kenyan Households

Abstract

In this paper I examine financial literacy and saving for retirement in Kenya using the household survey of 2016 from FinAccess Kenya. I use probit regressions to determine the effect financial literacy has on individuals saving regularly as well as saving for retirement. My findings show that households with higher levels of financial literacy will tend to have a higher likelihood to save on a regular basis and subsequently save for retirement. I find that women, the less educated, rural and lower income households tend to have lower levels of financial literacy measured by both knowledge of financial concepts and effective numeracy. Inasmuch as this disparity exists between the groups with regard to levels of financial literacy, there is interestingly neither location disparity between rural and urban households nor gender disparity with reference to saving. To investigate the nexus of causality between financial literacy and saving for retirement, I develop an instrumental variable approach by using the proximity of a household to the nearest public secondary school. I find a positive effect of financial literacy on saving for retirement.