QUESTIONS AND RESEARCH OBJECTIVE
3.1 Research Problem and Gaps in the Literature
People in the working stage are progressively facing complex decisions on how to make sound investment decisions and which one is appropriate for their personal circumstance. In addition, together with the fast-growing economy and financial markets, there are wide-ranging choices of financial products and financial instruments to invest for their retirement such as stock markets, long-term deposits at banks, government bonds, corporate bonds, private pension funds, mutual funds and investment trusts. According to the literature from personal finance and financial decision-making, financial literacy plays an essential role in making informed financial decisions (Arnone, 2004). Empirical studies into this field indicate that individuals with better knowledge of financial literacy contribute a lot to their financial well-being (Lusardi & Mitchell, 2011a;
Lusardi & Tufano, 2015a, Disney et al., 2015; Almenberg & Dreber, 2015).
Added to this complication, developing countries in general and Vietnam in particular has an inefficient social security system and this system currently has to face challenges of low coverage rates, inequities in contribution and benefits among different groups of participants, and financial unsustainability (World bank, 2012). Given that the benefits and pension income from the social insurance system are very low and do not cover basic standard of living when people reach retirement in developing countries, particularly in Vietnam, making investment choice decisions for retirement stage from the working stage is really necessary and important. In addition, according to the findings from preliminary survey which was conducted to inquire into the real situation of Vietnamese employees, the problems employees who are currently working have rely on their personal circumstance. In most cases, the nature of their problems such as wealth, asset accumulation, or pension income depends on how they make savings and invest their money when they are currently working and factors impacting on their perception of making investment choice for their retirement. Therefore, this situation raises the question whether Vietnamese employees who are currently in the working stage have saved their money for their retirement by exercising retirement investment choice or not. Another question asks what the role of financial literacy level in retirement investment choice is because their choice extremely affects the growth rate and volatility of the accumulated wealth and crucial retirement benefits. Consequently, employees who are currently in the working stage have to face the challenge of making decisions on retirement investment choice.
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As mentioned in Literature review Chapter, most prior researches which were conducted into personal finance area found that financial literacy is the main factor influencing investment decision-making and accumulative wealth of individuals (Agnew et al., 2013; Croy et al., 2010; Lusardi & Mitchell, 2007a;
Lusardi et al., 2013). However, the majority of such researches engrossed retirement planning and savings intentions. In addition, most earlier studies just considered the relationship between financial literacy and stock market participation (van Rooij et al., 2011); financial literacy and derivative market participation (Hsiao & Tsai, 2018); financial literacy and retirement planning (Boisclair, et al., 2015); financial literacy and individual saving (Mahdzan &
Tabiani, 2013; Ismail & Rashid, 2013; Jappelli & Padula, 2013; Pan, 2016) or the determinants of household savings and financial behaviour (Agarwalla et al. 2015;
Agarwal et al. 2015; Pan, 2016). Very few studies offered the suggestion that more research should be done to explore and identify what factors drive individuals to make investment choice for their retirement. Therefore, very limited number of studies examined financial literacy in the context of retirement investment decision-making. Therefore, the research on this aspect is limited and not covered completely.
Accordingly, the research problem of this study is: “Employees who are currently in the working stage have to face the challenge of making decisions on investment choice for financial well-being in the retirement stage”.
3.2 Research questions and Research Objectives
Given that there is a gap in investment choice for retirement, the main objective of this research is to develop a conceptual framework which investigates and confirms the role of financial literacy and other key factors motivating people in the working stage to make investment choice decisions for financial well-being in the retirement stage. In order to achieve the main objective of this research, the research questions are posed in the context of pension in Vietnam. First of all, a theoretical framework of this research was set based on literature review in order to identify the main factors impacting on individuals’ financial decision- making in the context of retirement investment choice. Then specific research questions are posed. These research questions generally address the role of financial literacy and other factors in retirement investment choice exercised by employees in Vietnam. Therefore, at the first step, the level of financial literacy is assessed in order to provide an overview of financial literacy of Vietnamese employees.
Therefore, the first research question is posed:
Research Question 1: What is the level of financial literacy of Vietnamese employees?
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Its partial objective: Assessing Vietnamese employees’ financial literacy level in order to provide an overview of financial literacy of Vietnamese employees.
Then, the differences between basic and advanced financial literacy levels are also explored in the specific situation of retirement investment choice decisions.
Hence, this research examines the role of financial literacy in the context of retirement investment choice. Accordingly, the second research question is posed:
Research Question 2: What is the relationship between financial literacy and retirement investment choice decision-making of Vietnamese employees?
Its Partial objective: Exploring employees’ ability to use financial knowledge to make choices for their retirement. Therefore, the role of financial literacy in their retirement investment choice is examined.
Hypothesis H1A: The level of financial literacy is positively related to the likelihood of exercising retirement investment choice.
Hypothesis 1B: The level of financial literacy is positively related to the likelihood of selecting growth investing options rather than conservative investing options.
Although there is a limited number of research into the relationship between pension knowledge and retirement saving decisions, Jappelli and Padua (2013) suggest that individuals with generous Social Security benefits often have fewer motives for saving and accumulating wealth. The researcher believes that pension knowledge might support individuals in planning retirement investment. This can be explained that with pension knowledge, individuals know how much they should contribute and how much they can get when they reach retirement. Hence, they can see a clear picture of their pension income and this may impact on their perception of their retirement saving decisions. In addition, previous personal financial literature proposes that there are other factors also affecting investment decision-making (Van Derhei & Holden, 2001; Kempson, 2009). They acknowledged that financial risk tolerance and financial advice have a relationship with a diversity of financial decisions. Hence, to examine the role of pension knowledge and other key factors which can affect retirement investment choices of Vietnamese employees who are currently in the working stage, the third research question is posed:
Research Question 3: Are pension knowledge, financial risk tolerance and financial advice of Vietnamese employees correlated with their retirement investment choice decision-making?
Its partial objective: Examining the role of pension knowledge, financial risk tolerance and financial advice which can affect retirement investment choices of Vietnamese employees who are currently in the working stage.
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Hypothesis 2: The level of pension knowledge is positively related to the likelihood of exercising retirement investment choice.
Hypothesis 3: The level of financial risk tolerance is positively related to the likelihood of exercising retirement investment choice.
Hypothesis 4: Employees who consult with financial experts have a propensity for exercising retirement investment choice