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Rian Ashari, Fendi, May Goverish, Silvia Sri Mustika (2024) The Influence of Financial Literacy
and Personality Traits on Retirement Planning Strategies Among Full-time Employees of Indonesia,
(06) 09,
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2684-883X
THE INFLUENCE OF FINANCIAL LITERACY AND PERSONALITY TRAITS ON
RETIREMENT PLANNING STRATEGIES AMONG FULL-TIME EMPLOYEES OF
INDONESIA
Rian Ashari, Fendi, May Goverish, Silvia Sri Mustika
Universitas Prasetiya Mulya, Indonesia
Email: [email protected], [email protected],
[email protected], [email protected]
Abstract
The purpose of this paper is to examine the impact of financial literacy and Personality traits
on retirement planning strategy among full-time employee in Indonesia. This study applies a
quantitative approach and the data were collected through online survey and compose of 358
respondents of full-time employess in Indonesia. The study reveals that age, income, and
openness significantly related to pursuing active planning retirement strategy. Financial
knowledge and behavior do not significantly affect the intention to pursue any retirement
planning strategy. We expect this study to contribute into significant implication for
Goverment, financial practitioners advisor, financial services authority (OJK) & Banking
regulations include an individual worker. Earlier research on retirement planning focused on
financial characteristics of the individual separately from the individual’s subjective norms
(age, income, dependents, personality traits). This study combine those factors and see how
each factor influences the final retirement planning strategies.
Keywords: Retirement planning strategy, personality traits, Financial literacy
INTRODUCTION
In today's society, preparing for retirement has become increasingly important due to
factors such as longer life expectancy and changing economic landscapes. However,
retirement planning is often neglected or put off by many individuals, particularly in
developing economies like Indonesia (Moreno-Herrero et al., 2017).
The conditions of Indonesia’s ratio of saving pension fund to GDP, is about 5.4%, a
tenth of Malaysia which is having similar demographies (productive age population
declining). Indonesia’s saving pension situation is similar to India. However, India productive
age population is still growing (Niu & Zhou, 2018).
This study explores the impact of financial literacy and personality traits on the
retirement planning behavior of full-time employees in Indonesia, with the aim of designing
interventions to improve workers' preparedness for retirement (Widjaja et al., 2020) .
Financial literacy and personality traits have a significant impact on Planning behavior
and retirement planning (Larisa et al., 2020). Previous studies have shown that personality
traits play. a crucial role in shaping individuals' financial behaviors and decision-making
processes (Popovici, 2012). For example, individuals with high levels of conscientiousness
and self-control tend to be more disciplined in Planning and planning for the future, while
those with low levels of conscientiousness and impulsiveness may have difficulties in
JOURNAL SYNTAX IDEA
p–ISSN: 2723-4339 e-ISSN: 2548-1398
Vol. 6, No. 09, September 2024
Rian Ashari, Fendi, May Goverish, Silvia Sri Mustika
6098 Syntax Idea, Vol. 6, No. 09, September 2024
following through with Planning plans. Additionally, financial literacy is essential in helping
individuals understand basic financial concepts, make informed decisions about Planning and
investing (Hasler & Lusardi, 2017; Lusardi & Mitchell, 2007), and navigate the complex
world of retirement planning. this study aims to provide insights into effective strategies for
promoting retirement planning among full time workers in Indonesia.
The study also takes into account the unique context of full-time employees in
Indonesia, as the country faces specific challenges when it comes to retirement planning
(Larisa et al., 2020). For example, Indonesia has a relatively low level of financial literacy
compared to other countries in the Asia-Pacific region (Larisa et al., 2020; Pak & Mahmood,
2015). This limited understanding of financial concepts, combined with the insufficient focus
on preparing for retirement within the society, may impede individuals' capacity to save
effectively for their future. The results of this research will contribute to the current body of
knowledge on retirement planning and offer valuable perspectives for policymakers,
employers, and organizations dedicated to promoting financial literacy and retirement
planning in Indonesia. Ultimately, by examining how financial literacy and personality traits
impact full-time employees' Planning habits towards retirement in Indonesia, this study seeks
to guide interventions and initiatives that empower individuals to make informed financial
choices, enhance their financial acumen, and plan adequately for their retirement. In
summary, both financial literacy and personality traits play a significant role in influencing
Planning behavior and retirement planning among full-time employees in Indonesia
RESEARCH METHOD
The work analyzes 358 observations from the full-time employees of Indonesia. More
than 95% of the sample are adults between 24-59 years old. Indonesian most populated island,
Java, are represented by 79.6% of observations. Other highly populated islands, such as
Sumatra and Bali, represented by 10.1% of observations. The remainder represents
Kalimantan and eastern islands.
The questionnaire was used to measure constructs used in this research framework, and
the instrument was adopted using validated measures from previous studies (Ghozali, 2016).
Independent variables also include the three components of financial literacy: financial
knowledge (FK), financial attitude (FA) and financial behavior (FB). For each, binary
variables were set based on a battery of questions we adopted 14 items from the study of
Osvaldo Garcia Mata (2021) for financial perceived and financial attitude, 19 items from the
study of Muskan and Ritu (2022) for personality traits; Neuroticism (NR), Extraversion (EX);
Openness (OP), Agreeablesness (AG) and Conscientiousness (CO).
The works of Grigion Potrich et al., 2015; Klapper et al., (2015) and Chen and Volpe
(1998) motivated the establishment of thresholds for financial knowledge, high financial
attitude and high financial behavior. Potrich et al. (2015) called high financial knowledge to
those getting at least 10 out of 13 points in a battery of questions applied in Brazil.
From the total number of individuals, 358 answered:
Yes or no, in at least one of the questions regarding how they intend to finance their
retirement (Hidayat, 2015). These questions define the person’s intention toward different
strategies: private pension plan (DPLK), renting or selling properties, investing in financial
assets (stocks, bonds), government pension plan or BPJS, or relying on family or friends.
The Influence of Financial Literacy and Personality Traits on Retirement Planning Strategies
Among Full-time Employees of Indonesia
Syntax Idea, Vol. 6, No. 09, September 2024 6099
a. Yes or no, in the the questions regarding their financial knowledge (7 questions), behavior
(5 questions), and attitude (2 questions). The individual gets 1 on financial knowledge for
answering 6 questions (out of 7) or more correctly. Each gets 1 on financial behavior for
answering “yes” on 4 questions (out of 5). Each gets 1 on financial attitude for answering
“yes” on 2 questions (out of 2).
b. 5 points likert scale on questions regarding neuroticism (7 questions), extraversion (4
questions), openness (5 questions), agreeableness (3 questions), and conscientiousness (3
questions).
For analyzing the effects determinants factors over planning for retirement, binary
logistics regression model for each strategy was put to the test.
RESULT AND DISCUSION
The sample analyzed includes 358 observations corresponding to Indonesian full-time
employees with majority of age between 24 to 47 (91.1% of sample). As shown in the
following table, majority of them have high score in financial characteristics (75% for each of
literacy, behavior, and attitude). Concerning personality traits, majority of the respondents
have high scores in extraversion and conscientiousness (>50% for each).
Table 1 Descriptive Statistics
Total
Variable
N
%
Retirement Planning Strategies
Private pension fund (DPLK)
257
71.8
Property
304
84.9
Financial assets (stocks, bonds, etc)
236
65.9
Civil Servant Pension or BPJS
313
87.4
Family or friends
68
19
No strategy
2
0.56
Financial Characteristics
Financial knowledge (high score)
274
76.5
Financial behavior (high score)
279
77.9
Financial attitude (high score)
275
76.8
Subjective Norms
Age
18-23
3
0.84
24-39
155
43.3
40-47
168
46.9
48-59
30
8.38
>60
2
0.56
Dependents
0
50
14
1-3
248
69.3
>=4
60
16.8
Income (millions IDR/month)
<5
20
5.6
5-<10
87
24.3
Rian Ashari, Fendi, May Goverish, Silvia Sri Mustika
6100 Syntax Idea, Vol. 6, No. 09, September 2024
Total
Variable
N
%
10-<20
91
25.4
20-<30
40
11.2
>30
120
33.5
Personality Traits
Neuroticism (high score)
8
2.2
Extraversion (high score)
197
55
Openness (high score)
94
26.3
Agreeableness (high score)
83
23.2
Conscientiousness (high score)
210
58.7
Indonesian full-time employees have differences concerning financing their retirement:
71.8% consider relying on private pension fund (DPLK), 84.9 relying on property, 65.9
relying on financial assets, 87.4% relying on civil servant pension plan or BPJS, and 19%
relying on family or friends. Only 0.56% have no strategy yet to finance their retirement.
We consider private pension fund (DPLK), property, and financial assets as active
retirement planning. They are not mandated by the government and in the case of property
and financial assets, they require initiative from the individual.
Table 2 Determinants of Active Retirement Planning
Private Pension
Property
Financial Assets
Beta
p
Beta
p
Beta
p
0.469
-0.145
0.072
-0.221
-0.837
**
-0.571
*
0.215
0.04
0.003
-0.106
-0.171
-0.788
***
0.045
0.482
-0.422
*
0.221
**
0.03
0.678
***
0.219
0.045
-0.008
0.137
0.092
-0.15
0.208
-0.168
0.686
***
0.038
-0.111
-0.017
0.361
*
0.491
*
-0.067
Income and openness significantly and positively related to considering financial assets
for retirement (p<0.01). Age significantly and negatively related to considering financial
assets for retirement (p<0.01).
Income somewhat and positively related to considering private pension plan (DPLK) for
retirement (p<0.05).
Financial behavior somewhat and negatively related to considering property for retirement
(p<0.05).
We consider government pension plan or BPJS, and relying on family or friends for
retirement fund as passive retirement planning. They don’t require any initiative from the
individual. Government pension plan or BPJS are mandated and taken from the monthly
salary automatically without any interference from the individual.
Table 3 Determinants of Passive Retirement Planning
The Influence of Financial Literacy and Personality Traits on Retirement Planning Strategies
Among Full-time Employees of Indonesia
Syntax Idea, Vol. 6, No. 09, September 2024 6101
Govt. Pension or BPJS
Family or Friends
Strategies/Variables
Beta
p
Beta
p
Financial knowledge (high score)
0.364
0.115
Financial behavior (high score)
-0.272
-0.439
Financial attitude (high score)
-0.007
0.784
**
Age
0.626
**
-0.195
Dependents
0.035
-0.99
Income (millions IDR/month)
-0.35
**
-0.231
*
Personality Traits
Neuroticism (high score)
0.528
*
0.272
Extraversion (high score)
-0.001
0.012
Openness (high score)
-0.215
0.229
Agreeableness (high score)
-0.067
0.138
Conscientiousness (high score)
0.35
0.23
Age somewhat and positively related to considering government pension plan or BPJS for
retirement (p<0.05).
Financial attitude somewhat and positively related to considering relying on family or friends
for retirement (p<0.05).
The influence of income to active retirement planning can be approached by the fact
that Indonesia has a relatively low income when compared to other countries. According to
IMF, when adjusted to purchasing power parity (PPP), in 2024 Indonesia rank 97 out of 192
countries in GDP/capita. Its GDP (PPP)/capita is 28% lower than world’s average. In such
situation, Indonesian workers income will be used much to accommodate living cost with
little left for retirement savings. The finding that income also somewhat significantly and
positively related other active strategy such as private pension plan (DPLK) supports this
idea. Thus, the higher the individual income the more likely that person has the ability to
pursue active retirement planning such as investing in financial assets (Rendall et al., 2021).
Investing in financial assets such as stocks requiring the individual to be open to assets
that are not directly and physically accessible like property. The conventional wisdom among
Indonesian older generation is to buy property or gold, where the risk of depreciation is low,
and then let the time appreciate those assets. Investment in stocks requires higher acceptance
of risk (Sachdeva & Lehal, 2023). Therefore it is sensible that openness is related to the
pursuing financial assets as a retirement planning strategy.
The influence of age can be seen as complementary between active and passive
retirement planning strategies. Age significantly and negatively related to active retirement
planning such as financial assets (Wang et al., 2021). It is somewhat significant (p<0.05)) and
positively related to passive retirement planning strategies such as government pension or
BPJS and relying on family/friends for retirement funding. Younger generations are most
likely more open to risky assets than the older generations. In such situation, older generations
would prefer less risky plan of retirement funding such as government pension or BPJS.
Financial behavior somewhat and negatively related to considering property for
retirement (p<0.05). The financial behavior aspect in this study is structured to represent
discipline of the respondents in managing money (keeping a budget, setting financial goals,
spending within limits). Respondents with high score in financial behavior can be considered
prudent in managing their money. Property is a type of asset that is stable and thus suitable for
prudent respondents. However, as the increase of Indonesian workers’ wages has not been
keeping up with the increase of property prices, it’s difficult for them to buy a second
Rian Ashari, Fendi, May Goverish, Silvia Sri Mustika
6102 Syntax Idea, Vol. 6, No. 09, September 2024
property as an investment to be sold or rented in the future. It is more affordable to
accumulate other assets (stocks, bonds) with small monthly payments.
Financial attitude somewhat and positively related to considering relying on family or
friends for retirement (p<0.05). The financial attitude aspect in this study is structured to
represent preference between spending and saving, and whether the respondents are
considerate when buying things. High score in financial attitude represents preference for
spending but considerate when buying things. This attitude is likely to represent people who
has relatively low incomes. They have no disposable incomes (thus likely only to spend for
the basic necessities) and consequently very considerate when buying things. As there is no
disposable incomes, they nothing to save or invest for retirement. It is understandable that
they are considering relying on family or friends for retirement.
CONCLUSION
This paper investigates the influence of financial literacy and personality traits on
retirement planning strategies among full-time employees in Indonesia. This study uses
quantitative approaches by collecting data from 358 respondents through online surveys.
Survey results show that age, income and openness significantly related to active retirement
planning strategies. On the other hand, financial knowledge and attitude do not have
significant influence to any retirement planning strategies.
These findings give practical implications to governments, financial practitioners, and
Financial Services Authority of Indonesia (OJK), to develop financial literacy and retirement
planning knowledge among full-time employees. This study combines factors such as age,
income, dependents, and personality traits in analyzing retirement planning strategies, which
were previously studied separately.
Overall, this study emphasizes that financial literacy and personality traits play
important roles in determining the retirement planning strategies among full-time employees
in Indonesia. This study is expected to give additional insights to policy makers and
organizations dedicated to promote financial literacy and retirement planning in Indonesia
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