The life expectancy rate of individuals worldwide has risen, and Saudi Arabia is not excluded. Rising long-life expectancy may jeopardize employees’ pensions and reduce the chances of adequate earnings and a decent life after retirement. Moreover, the number of employees, who have paid into pension funds and are now retired, has increased, indicating that pension funds are expected to decrease. Apart from the above, the level of financial literacy in Saudi Arabia was substandard. Therefore, the ultimate objective of this research is to examine the measurable factors that could impact employees in their financial planning for retirement (FPR). These factors comprise the employee’s financial literacy (FL), financial risk tolerance (FRT), and cultural factors based on the CWO model.
1. Intentional Change Theory (ICT)
The theoretical foundation for the present study is drawn from the Intentional Change Theory (ICT), which was developed by Richard
Boyatzis (
2006).
Boyatzis (
2019) and
Topa et al. (
2018a) proposed that combining ICT with the variables of capacity, willingness, and opportunity model (
Hershey et al. 2012) would increase the understanding of the process, antecedents, and outcomes of FPR. The capacity dimension, which includes the cognitive variables, can predict a sustainable change achieved through financial knowledge and skills, and this is a prerequisite to an individual’s readiness for FPR (
Topa et al. 2018a). For example, when an individual intends to plan for retirement, the individual needs to have some financial knowledge and skills so as to achieve several necessary financial decisions before retirement. Studies such as
Lusardi (
2019) and
Rudi et al. (
2020) concluded that life’s financial decisions during the college-to-career transition and after retirement rely on the individuals’ financial literacy and their comprehension of personal finance.
Lusardi (
2019) stated that life’s financial decisions rely on the individuals’ financial knowledge and skills and the comprehension of personal finance.
2. Financial Literacy (FL)
In terms of retirement, those who were financially literate were expected to better plan for retirement, since they were more knowledgeable about the power of interest compounding and were able to make calculations (
Hutabarat and Wijaya 2020;
Rooij et al. 2012;
Topa et al. 2018b). Such an ability helps an individual to have different financial resources with which to generate funds besides social security and pension to increase their economic well-being in the future (
Palací et al. 2018;
Rudzinska-Wojciechowska 2017). Mastering these skills and knowledge allows individuals to effectively understand and manage financial assets, which must be reflected in their well-being.
Sarigul (
2014) proved that understanding financial literacy helps individuals to manage revenues and expenditures using different financial instruments and tools to increase their wealth and financial security. As a result, it is more important than ever to determine individuals’ level of financial literacy and how it affects retirement planning (
Lusardi 2019).
Based on
Lusardi (
2008), basic financial literacy is the minimum level of personal financial planning that everyone needs to know about, such as the time value of money, inflation, numeracy, the money illusion, and compound interest. According to the literature, some studies showed that basic financial literacy is adequate and has a significant positive relationship with FPR (
Boisclair et al. 2017;
Lusardi and Mitchell 2008;
Ricci and Caratelli 2017). Meanwhile, advanced financial literacy involves several topics, such as stocks and bonds, financial institutes, mutual funds, interest rate effect on securities, and risk–return relationship issues.
3. Financial Risk Tolerance (FRT)
Financial risk tolerance is the most crucial variable for those planning their financial operations and is, at the same time, the most challenging variable to evaluate (
Cooper et al. 2014). A recent study found that financial risk tolerance is essential for retirement planning and financial counseling (
Bayar et al. 2020).
Grable (
[1] 2000) found that people’s financial risk tolerance levels differed based on age, educational background, marital status, occupation, cultural background, and economic expectations. Hence, the determination of personal financial risk tolerance demonstrates the degree to which individuals are able to choose financial investments within their portfolios (
Bayar et al. 2020).
4. Mediating Role of Culture
The planning process is different from one country to another, not only because of the country’s rules and pension system, but also because of the people’s culture. Thus, it is considered complicated. Previous cross-cultural studies looking at retirement had derived some interesting findings. They illustrated that culture-specificities could lead to different preparations regarding retirement planning among the people (
Koposko et al. 2016;
Weisfeld-Spolter et al. 2018), even with well-developed pension schemes (
Lusardi and Mitchell 2011b). For instance,
Koposko et al. (
2016) compared subjects in the United States and Mexico to see how they behaved in their FPR. Their findings have shown that future time perspective and parental influence on savings were higher among American students than Mexican students. However, retirement goal clarity was higher for Mexican students than US students. Another study investigated the differences in employees’ retirement attitudes between the United States and The Netherlands (
Hershey et al. 2007). The results have indicated that people in The Netherlands had lower levels of retirement goal clarity and retirement-planning activities. However, their perception of retirement savings was higher when compared to people in the United States.
A study by
AXA (
2007) conducted its annual report on retirement in several countries worldwide to examine workers’ attitudes toward retirement and obtain data on retirees’ retirement. The results revealed that retirement varies from country to country because of each society’s different customs and traditions. In terms of cultural approaches to retirement, for example, working people in Britain start planning for retirement at 28, Chinese at about 37, and Europeans at about 32 years old. The monthly retirement savings plans in France were 13%, in Australia 37%, and in Belgium 25%. Regarding social approaches to retirement, the report indicated that working individuals in Spain and Germany anticipate retiring at 63, Americans at about 64, and Chinese at about 55 years old. Moreover, it indicated that 34%, 80%, 68%, and 65% of retirees retired before the legal minimum age in France, Italy, Canada, America, and Australia, respectively.
Likewise,
Imamoglu et al. (
1993) examined aging and retirement attitudes between Sweden and Turkey. The findings revealed that Turkish people became more sociable as they came close to retirement compared to the Swedish people. However, Turkish individuals were less life satisfied in retirement when compared to their Swedish counterparts. Such studies implied that FPR behaviors among various cultures and nations need further investigation in order to establish a more precise picture (
Koposko et al. 2016).