Logistic regression analysis of financial literacy implications for retirement planning in Croatia

Abstract

Abstract.The relationship between financial literacy and financial behavior is important, as individuals are increasingly being asked to take responsibility for their financial wellbeing, especially their retirement. Analyzing of individual savings and attitudes towards retirement planning is important, as these types of investments are a way of preserving security during years of financial vulnerability. Research indicates that individuals who do not save adequately for their retirement, generally have a relatively low level of financial literacy. This research investigates the relationship between financial literacy and retirement planning in Croatia. To analyze the relationship between financial literacy and planning for retirement, maximum likelihood logistic regression analysis was used. The paper shows that those who answer financial literacy questions correctly are more likely to have a positive attitude towards retirement planning and are more likely to save for retirement, ensuring them of higher levels of financial security in retirement. The Goodness-of-Fit evaluation for the estimated logit model was performed using the Andrews and HosmerLemeshow Tests.

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“…While financial literacy in developed countries is generally at satisfactory level, the situation in developing countries is different. As reported by Barbic et al (2016), Croatians in their study were not aware that their financial literacy would have an impact on their financial wellbeing during retirement period.…”

“…As such, individual may need to make the decision on investment, mortgage, buying a high value of assets and getting credit and these decision must be made within the informed choice, balance between risk and opportunities and understanding on the financial products. According to Barbic et al (2016) and Hsiao et al (2016), a more financially literate individual is more likely to have better financial preparation for retirement days. This is due to their understanding on the consequences of any action in relation to financial wellbeing they may take or ignore.…”

“…All this continuing issue related to financial wellbeing has contributed to the development of different streams of financial wellbeing literature, which is still growing. As such, there are studies investigating the factors of financial wellbeing (e.g: Gaisina & Kaidarova, 2017), while others investigating the consequences of financial wellbeing (e.g: Barbic, Palic & Bahovec, 2016). The issue is becoming more critical with the increasing number of pensioners across nation, higher number of productive workers in the job market and also higher number of reported case in relation to personal debt, poor financial management and improper financial planning.…”

“…The negative effect to the nation is because people with financial difficulties may have negative impact on their productivity, physical health, economic and psychology (Kaur et al, 2013). Barbic et al (2016) highlighted that people living in poverty will become dependent to the government welfare program. Therefore, realizing the important of individual financial wellbeing towards a nation wellbeing, the government of Latvia had considered people financial literacy as a national agenda (Ciemleja, 2016), the step taken by many other countries including Malaysia.…”

“…A higher number of post working age citizens means more people will live without active income and more critical on having a wellbeing financial status during their older age for supporting their necessary expenses including medical expenses. Recognizing the important of financial wellbeing as a component of human wellbeing, few researchers did study on this issue such as Barbic et al (2016);Husna et al (2012) and Mohamad and Teo (2014).…”