Are Indian professional women financially literate and prepared for retirement?

• Published date: 01 December 2021
• Author: H. Kent Baker,Sweta Tomar,Satish Kumar,Deepak Verma
• Date: 01 December 2021
• DOI: http://doi.org/10.1111/joca.12332

SPECIAL ISSUE

Are Indian professional women financially

literate and prepared for retirement?

H. Kent Baker

1

| Sweta Tomar

2

| Satish Kumar

2

|

Deepak Verma

2

1

Kogod School of Business, American

University, Washington, District of

Columbia

2

Department of Management Studies,

Malaviya National Institute of

Technology, Jaipur, India

Correspondence

H. Kent Baker, Kogod School of Business,

American University, Washington, DC.

Email: kbaker@american.edu

Abstract

This study examines the financial literacy level of

Indian professional women and its relation to their

retirement planning behavior. We use factor analysis

and the Rasch model to evaluate the validity and reli-

ability of a financial literacy scale. Additionally, we use

multiple regression to examine the association between

demographic characteristics and financial literacy with

retirement planning. Our results reveal that the respon-

dents display low levels of financial literacy as reflected

by a lack of awareness about both basic and advanced

financial concepts. Further, a woman's age, income,

profession (financial), and understanding of advanced

financial concepts are key factors associated with

retirement planning behavior. The findings have impli-

cations for financial planning professionals, advisors,

regulators, and policymakers in guiding women to

make better retirement decisions.

KEYWORDS

financial literacy, financial planning, retirement planning

1|INTRODUCTION

The gradual shifting of pension plans from defined benefit to defined contribution has changed

how many people manage their retirement planning. This shift places more responsibility on

individuals to manage their finances and secure sufficient retirement wealth. Because financial

Received: 16 July 2019 Revised: 12 July 2020 Accepted: 17 July 2020

DOI: 10.1111/joca.12332

Copyright 2020 by The American Council on Consumer Interests

1416 J Consum Aff. 2021;55:1416–1441.wileyonlinelibrary.com/journal/joca

markets contain many complex financial instruments, people need to understand financial

products to make well-informed decisions. Thus, financial literacy plays a vital role in retire-

ment planning.

According to the Organization for Economic Cooperation and Development (OECD) Inter-

national Network on Financial Education (INFE) (2011, 3), financial literacy is “a combination

of awareness, knowledge, skill, attitude and behavior necessary to make sound financial deci-

sions and ultimately achieve individual financial well-being.”Research suggests that most peo-

ple have little understanding of savings and investment decisions (Lusardi and Mitchell, 2007;

2011b; Hastings and Mitchell, 2020). This lack of understanding raises some concerns about

how they can ensure their financial well-being after retiring. Women are especially deficient in

terms of financial knowledge (Martin, 2007; Lusardi and Mitchell, 2008; 2009; Bucher-Koenen

and Lusardi, 2011). This latter finding is particularly relevant because women have a longer life

expectancy but typically receive lower wages and pension benefits than men. They may also

have less access to property or other assets that could provide additional financial support.

Women often have interrupted work histories due to their caregiving roles and participation in

part-time or lower-paying service positions that are not covered under pension plans

(UN Women, 2015). All these factors contribute to their susceptibility to poverty after retiring.

Hence, women need to become familiar with the financial world and be financially

independent.

India is not an exception to this global movement. The Indian population is also rapidly

aging. Those at least 60 years old are expected to increase from 88 million in 2009 to about

315 million by 2050 (Bharati and Singh, 2013). Further, the traditional joint family structure in

India has historically served as a safety net for the social and economic well-being of the elderly

population. Yet, with swift urbanization and the changing social and economic landscape, the

nuclear family evolved leaving elderly individuals facing emotional and economic insecurities

(Chauhan and Indapurkar, 2017; Agarwal et al., 2020). Also, given increasing healthcare costs,

higher life expectancy, and lower saving rates, attaining income security has gained increasing

relevance among older adults (Kimiyagahlam et al., 2019).

Like other developing and emerging economies, India's capital market is also growing with

new products and services to meet rising income levels and consumption. This growth further

accentuates the role of financial literacy, whereby low awareness of financial products and con-

cepts is likely to hamper the demand side and have a detrimental influence on future returns

and savings.

Although India bears a cultural resemblance with its Asian neighbors, it is unlike North

America and other western countries (Hofstede, 1980) where most of the retirement and finan-

cial planning studies on women have been conducted (Kumar et al., 2019). Further, individuals

with higher income and in professional occupations are more likely to acquire greater financial

literacy (Estes and Hosseini, 1988; Chen and Volpe, 2002; Worthington, 2006). A tentative

explanation for this association is that as income increases, so should disposable income. Such

funds could accelerate one's efforts to find investment opportunities and acquire more informa-

tion. Our study focuses on professional women in India because they should have sufficient

resources and the means to engage in financial planning.

The objectives of our study are twofold:

1. To examine the level of financial literacy among professional women in India.

2. To study the association among demographic characteristics, financial literacy, and retire-

ment planning of these women.

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