Effect of Personal Finance Management on the Financial Well-being of Households in Mombasa County, Kenya

Abstract

The study objective was to determine the effect of personal finance management on financial well-being of households in Mombasa County, Kenya. The study was anchored on the behavioural life cycle theory, financial literacy theory, and cognitive finance theory. The study employed a descriptive research design, targeting 400 households in Mombasa County, Kenya, to assess how personal finance management (budgeting, savings, investing) and investor demographics affect financial well-being. Data was collected using structured questionnaires and analysed through SPSS, using regression and correlation analysis to establish significance. Data collection was conducted using structured questionnaires divided into sections covering investor demographics, personal finance management, and financial well-being, with analysis performed using SPSS for descriptive, correlation, and regression assessments. The study findings highlight significant relationships between personal finance management practices budgeting, savings, investing and financial well-being in Mombasa County, Kenya. The multiple regression model, with an R value of 0.972 and an Adjusted R-Square of 0.944, indicates that 94.4% of the variance in financial well-being is explained by the model, showcasing its strong explanatory power. ANOVA results revealed a significant F-test value of 1448.167 (p < 0.05), confirming that the regression model is statistically significant and the variables collectively contribute to financial well-being. Analysis of unstandardized coefficients showed that budgeting (B = 0.350, p < 0.05) had the greatest positive effect, followed by investing (B = 0.264, p < 0.05) and savings (B = 0.225, p < 0.05). Investor demographics (B = 0.158, p < 0.05) also contributed positively but to a lesser extent. The significance of the F-test (p = 0.000) affirmed the combined impact of these variables, emphasizing that budgeting, savings, and investing are crucial for financial well-being, with budgeting showing the most substantial effect. The study concludes that personal finance management practices budgeting, savings, investing, and investor demographics significantly impact financial well-being in Mombasa County, Kenya. Budgeting emerged as the most influential factor, with practices like setting financial goals and adhering to spending limits enhancing financial stability. Savings also contributed meaningfully, highlighting the role of long-term goals and emergency funds in fostering security. Investing had a strong positive impact, underscoring the importance of strategic, diversified investment activities and financial literacy. Investor demographics, such as higher income, supported better financial practices overall. Comprehensive financial management, supported by favourable demographic factors, is crucial for household financial stability and well-being. The studies limitations were; it focused on Mombasa county hence limiting generalizability to other regions, responses may be biased due to self-reported data and other crucial demographic factors could have been left out which would affect the study. Recommendations were made for policymakers to implement financial literacy programs, for residents to actively engage in financial planning, and for practitioners to provide targeted financial counselling and workshops. Further research was suggested to explore the long-term effects of financial education, the role of digital tools, and the influence of socio-cultural factors on financial decision-making.