Financial literacy and retirement preparedness in a developing economy: how conscientiousness and openness condition the payoff to financial knowledge

Abstract

Purpose. Financial literacy is widely treated as a lever for improving retirement outcomes, yet the assumption that knowledge translates evenly into preparation across individuals has rarely been tested in settings where pension coverage is thin. This study examines whether basic and advanced financial literacy predict retirement preparedness among salaried professionals in Pakistan, and whether the five-factor personality traits set boundaries on that relationship.

Methodology. Survey data were collected from 302 full-time working professionals in Karachi using an adapted instrument covering financial literacy at two levels, the Big Five traits, and retirement preparedness. The model was estimated with partial least squares structural equation modelling. Ten interaction terms were specified using the product-indicator approach, and significance was assessed with 5,000 bootstrap resamples. Because ten moderating hypotheses were tested simultaneously, results were re-examined after a Benjamini and Hochberg false discovery rate correction.

Findings. Both literacy dimensions predicted retirement preparedness, with advanced literacy carrying the larger coefficient (β = 0.170, p = 0.002) and basic literacy the smaller one (β = 0.152, p = 0.040). Together with the interaction terms the model explained 32.1 per cent of the variance in preparedness and returned a Q² of 0.142. Only two traits qualified the relationship. Conscientiousness strengthened both literacy paths, and openness strengthened the basic literacy path only. Simple slope analysis showed that among respondents one standard deviation below the mean on conscientiousness, the association between financial literacy and preparedness was flat or slightly negative, while among those one standard deviation above it the slope rose to 0.42. Extraversion, agreeableness and neuroticism produced no reliable interaction. After the multiplicity correction only the openness by basic literacy term survived at a 5 per cent false discovery rate, with the two conscientiousness terms surviving at 10 per cent.

Research limitations. The design is cross-sectional and confined to one city, the sample skews young and toward lower-income brackets, and preparedness is self-reported. These features limit causal and national inference.

Practical implications. Financial education delivered at the workplace is unlikely to produce uniform gains. Programmes that combine content with implementation supports such as default enrolment, scheduled reviews and automated contributions target precisely the group for whom knowledge alone does not convert into action.

Value. The study offers the first test in Pakistan of the Big Five as boundary conditions on the link between financial literacy and retirement preparedness, distinguishes basic from advanced literacy in that test, and reports a multiplicity-adjusted reading of a moderation model, which is uncommon in this literature.

Keywords: Financial literacy, Retirement preparedness, Big Five personality traits, Conscientiousness, PLS-SEM, Pakistan

https://doi.org/10.5281/zenodo.22283296