Effect of Financial Literacy on Personal Financial Planning in Kathmandu Valley, Nepal

Abstract

Personal financial planning and financial literacy are getting more attention nowadays due to better access to credit, rapid development in marketing financial products and with deregulation of financial markets. Financial education has helped people to enhance their financial knowledge and hence can understand how financial management helps them to make their personal financial decisions. Thus, it is very important to assess whether there is link between financial literacy and personal financial planning. This study investigates the effect of financial literacy on personal financial planning if individuals residing in Kathmandu valley of Nepal. A descriptive and causal comparative study was conducted among 384 people from Kathmandu valley that were selected using non-probability convenient sampling method. Primary data were collected by using standard questionnaire. Data analysis was done by using SPSS, descriptive statistics (frequency percentage, mean, standard deviation), inferential statistical technique like regression analysis, hypothesis testing and correlation analysis. The result shows that there is a positive relationship between financial awareness, financial knowledge, and personal financial planning. It indicates that if people are aware and knowledgeable enough about the financial products and basic financial concepts, it leads to an increase in execution of planning for their personal finances and successfully manages their finances. In addition, there is no statistically significant relationship of financial attitude that deals with the attitude towards viewing money and saving with personal financial planning but is positively correlated with personal financial planning. The outcome illustrates that financial awareness and financial knowledge have a significant impact on personal financial planning, but financial attitude does not have significant impact on personal financial planning. From the analysis, it was found that most affecting factor was financial knowledge (literacy), which explains that personal financial planning is influenced by financial literacy. Therefore, the concerned authority should focus on providing adequate financial education among people from different educational faculties to ensure that they can make effective financial plan for their future. Banks and financial institutions should create a higher level of awareness on financial products and basic financial concepts to ensure positive impact