Mapping the Role of Financial Literacy in Retirement Planning: Evidence from Exploratory Factor Analysis

Abstract

This study examines how financial literacy shapes retirement planning, highlighting the pivotal influence of financial knowledge on long-term financial choices. Although awareness of the need for retirement preparedness has grown, many people remain inadequately prepared due to limited financial literacy. The study’s core aim is to assess how various facets of financial literacy—such as familiarity with financial products, attitudes toward planning, and observable financial behaviors—inform retirement-planning decisions. Using Exploratory Factor Analysis (EFA), the study identifies key factors that link financial literacy to retirement preparedness. Data were collected from a sample of 350 individuals, with a focus on their financial knowledge, planning behaviors, and retirement savings actions. The findings reveal that knowledge of financial products and positive attitudes toward financial planning significantly influence retirement preparedness, while behavioral practices, such as saving and consulting financial advisors, play a crucial role in retirement. The study underscores the necessity of going beyond a narrow focus on expanding financial knowledge but also fostering proactive financial behaviors. It contributes to the field of behavioral finance by providing insights for more effective financial literacy programs and retirement planning interventions. The evidence ultimately indicates that comprehensive financial education is critical to strengthening retirement planning.