The effect of financial literacy on investment decision making by pension fund managers in Kenya

Abstract

This study assesses the financial literacy of the pension fund managers who invest in the pension’s scheme funds in local financial markets. In addition, it examines the relationship between financial literacy and the influence of the factors that affect the investment decision. The objective of the study is to establish the effect of financial literacy on investment decision making by pension fund managers. A modified likert scale questionnaire has been developed divided into three parts. The first part covers demographic variables. The second part identifies several financial literacy factors affecting the investment decision by pension fund managers in Kenya. The third part is devoted to factors of behavioral finance. A target population of all 16 fund managers in Kenya was used. The results indicated that the financial literacy of the is far from the needed level. The financial literacy level was found have a significant effect on investment decision making by fund managers. Since these decisions are ongoing, requiring members to periodically monitor and evaluate the performance of their chosen fund and investment option, and decide whether to switch to another fund and/or investment option. To achieve optimal outcomes in this complex decision-making environment requires decision-makers to have adequate levels of financial knowledge and skills. The call for enhanced financial literacy amongst consumers is a global phenomenon, driven by the growing complexity of financial markets and products, and government concerns about the affordability of supporting an ageing population.