A Conceptual Analysis: Financial Literacy and Financial Retirement Planning

Abstract

The role of financial literacy has become increasingly prominent as a key predictor of the economic welfare of individuals, especially in retirement planning. The shift of India from joint-family and defined benefit pensions to individualized market-linked retirement products such as National Pension System (NPS) makes the knowledge, attitude, and behavior of Indians regarding finances increasingly significant. The current paper attempts at conceptualization of the relationship between financial literacy and financial retirement planning by drawing on seminal research conducted internationally and in India on this subject. Secondary data obtained from nationally representative surveys (NCFE-FLIS, 2019) and government statistics (PFRDA) will be used in the study to explore the level of financial literacy in India and its relation to the indicators of the preparedness of Indians for retirement, including pension Enrollment and asset-building. It will be found out that although people's participation in formal pension instruments is rising rapidly, there remains a consistent gap in the financial literacy of Indians-only 27 percent of Indians are financially literate, and these rates significantly vary depending on geographical location and gender. The paper concludes that financial education interventions, simplified pension products, and behavioural nudges are essential to bridge the gap between retirement aspirations and retirement readiness in India.