The Effect of Financial Literacy on Personal Financial Management Practices: In the Case of Employees of Ethiopian Civil Service University

Abstract

The purpose of the study was to assess financial literacy and its effect on the personal finance management of employees of Ethiopian Civil Service University. The study was guided by the following specific objectives: to determine the effect of financial literacy on personal savings, to determine the effect of financial literacy on expenditure practices, to determine the effect of financial literacy on personal debt management and to determine the effect of financial literacy on personal investment choices. A descriptive quantitative research design was used for the study, which focused on the 1259 employees of the university. Data was collected using structured questionnaires, which were distributed using convenience sampling to the employees of the university. A sample of 303 employees from the population was conveniently sampled who comprised both academic and administrative staff. The completed questionnaires were keyed in the SPSS statistical software, and data was analyzed for descriptive statistics. In addition, one focus group discussion was conducted. The study found that financial literacy positively affects personal finance management among the employees of the university, which leads to more diversified savings, good expenditure practices, better investment practices, and good money management practices. Lack of financial literacy was indicated to hamper the personal financial management of the employees in the university. The researcher also sought to establish the effects of gender, area of specialization, level of education, work experience and salary range on personal financial management. The findings conclude that these factors strongly influenced personal financial management. In conclusion, results indicate that the majority of the respondents save less proportion of their salaries. This can be attributed to the high cost of living and individual’s financial discipline. Based on the research findings, the researcher recommends the university should have various financial literacy training programs for their employees to match the financial literacy of the employees to their propensity to save and invest. From the research findings, the government is advised to initiate subsidy programs that will lessen the cost of living and cultivate a culture of savings and investment among its citizen. The study further recommends that individuals should develop comprehensive saving and investment plans backed by prudent expenditure habits.

Keywords: Financial Literacy, Personal Financial Management

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