Financial literacy and retirement planning in Ghana

Purpose This paper aims to investigate the impact of financial literacy on savings and retirement planning in Ghana. Design/methodology/approach The study uses primary data collected from a sample of formal sector workers and probit models, to assess how financial literacy affects retirement planning. Findings The empirical analysis of this study shows that most individuals lack knowledge of basic concepts of finance. This study finds that only about 27% of respondents were able to correctly answer three simple questions on inflation, interest compounding and risk diversification. Generally, the young, the old, women, low-income earners and the less educated perform worst on financial literacy measures. Also, financial literacy has a positive significant impact on the probability of saving for retirement. Practical implications The low level of financial literacy observed should be of concern to policymakers. Evidently, concrete measures are required to strengthen the knowledge of particularly those in the vulnerable groups such as the young, the old, women, low-income earners and the less educated, in order to enable them to prepare adequately for retirement. Originality/value The study contributes to the scant financial literacy and financial behavior literature in developing countries such as Ghana.