The relationship between retirement planning and financial literacy in South Africa

Abstract

There is a global shift with regard to the retirement provision of individuals as people have a greater responsibility towards their financial plans for retirement. Globally, there is a concern that people are not saving enough for retirement and in South Africa, only 6% of the population is expected to retire with adequate funds to maintain their standard of living. The objective of this study is to determine if there is a relationship between retirement planning and financial literacy in South Africa and thus establish the correlation between financial literacy and low retirement savings rates. Furthermore, the financial literacy level and retirement planning behaviour of specific sociodemographic groups is discussed with a focus on age, gender, race, education level and income level. Secondary data collected from the South African Social Attitudes Survey (SASAS) 2011: Financial Literacy Baseline Survey has been used for this study and the survey was conducted on a sample of 2 972 individuals. To increase the validity of the results, the chi-square test, independent sample t-test and binomial logistic regression analysis are used to test the relationship between the two variables. All tests reveal a significant positive relationship between retirement planning and financial literacy. The study further reveals that only 27% of South Africans are actively planning for retirement and the sociodemographic groups with low retirement planning behaviour include women, less educated individuals, black African people and low-income earners. This study contributes to retirement planning literature by establishing the relationship between financial literacy and retirement planning in the context of a developing country that belongs to the association of five major emerging economies: Brazil, Russia, India, China and South Africa (BRICS). It is recommended that future research determines other factors that affect retirement planning and the effect of financial literacy on other financial behaviours, such as saving for emergencies.