Impact of Financial Literacy on The Investment Behavior of Retired Employees in the Western Province of Sri Lanka

Abstract

Introduction: Sri Lanka is one of the rapidly aging regions in South Asia. Retired employees face financial challenges because they have limited income sources during retirement so they should pay attention to the risk when making investments. Retired employees need sufficient income to survive and they make sound investments by investing their gratuity, which depends on their financial literacy levels. This study investigates the impact of financial literacy on the investment behavior of retired employees in the Western Province of Sri Lanka with the mediate effect of risk tolerance, risk perception, and risk aversion.

Methodology: 385 retired employees from the districts of Colombo, Gampaha, and Kalutara were surveyed using a structured questionnaire as part of the study's quantitative methodology. Regression and correlation analyses were used to examine the data.

Findings: The findings highlight that financial literacy increases the ability of retirees to make rational investments which leads to their financial freedom and security. The results show that financial literacy and investment behavior are significantly and positively correlated with risk tolerance, perception, and aversion. Higher financial literacy among retirees is associated with greater risk assessment which in turn leads to more successful investing behavior.

Conclusion: The study can be useful to policymakers and financial institutions to assist in developing programs, which will effectively address the needs of retirees and promote their independence and financial freedom. The findings also extend literature on the impact of financial literacy on investment decisions especially in developing nations like Sri Lanka.