Proceedings of the 24th International Academic Conference, Barcelona

FACTORS INFLUENCING THE RETIREMENT SAVINGS OF INDIVIDUALS IN THE EASTERN CAPE, SOUTH AFRICA

BOMIKAZI ZEKA

Abstract:

The state of saving in South Africa is known to be far from adequate. Prior research has shown that few South Africans have access to an affordable retirement funding vehicle and that more than half of the individuals contributing to retirement funds will have less than 28% of their final salary at retirement age (Nicholson 2013; National Treasury 2012:7). Through previous research, it has been shown that due to inadequate retirement savings, individuals are compelled to re-join the work force even once they have reached retirement age. Therefore, the purpose of this paper is to investigate the factors that influence the retirement savings of individuals. A hypothesised model for aiding this investigation was constructed and included variables identified through a thorough review of the literature. The variables illustrated in the hypothesised model were grouped as follows: • independent variables (financial literacy, future time perspective; level of retirement planning and sources of financial advice) • dependent variable (retirement savings). To determine the validity of the measuring instrument, an Exploratory Factor Analysis (EFA) was undertaken and to assess the reliability of the measuring instrument, Cronbach’s Alpha coefficients were calculated. Pearson’s Product Moment Correlation coefficients were also calculated to determine the correlations between the variables. Pearson’s Product Moment Correlation coefficients were also calculated to ensure that multicollinearity was not present in the study. A regression analysis was undertaken to test the hypothesised relationships. Based on the results of the EFA, the independent variables (level of retirement planning and sources of financial advice) and the dependent variable (retirement savings) retained their original definitions. However, the EFA also revealed that several of the items originally intended to measure the independent variables (financial literacy and future time perspective) as two separate constructs, loaded together onto one factor. The findings of this study revealed that if an individual is financial literate and is mindful of the future, the greater the likelihood that an individual will save for retirement. Therefore, it is recommended that institutions such as schools and places of employment offer educational programmes geared towards improving individuals’ financial literacy. Furthermore, the study found that individuals that actively plan for their retirement are more likely to save for their retirement. It is therefore recommended that individuals save as soon as possible for their retirement as individuals that plan for retirement have more control over their finances and are also more likely to be financially independent at retirement.

Keywords: financial advice; financial literacy, future time perspective, level of retirement planning; retirement savings

DOI: 10.20472/IAC.2016.024.101

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