Rationale of the Study

The study’s rationale can be attributed to rising stress among employees due to their financial constraints. Amidst any form of critical financial situation disrupting the economy and people’s lives and escalating the cost of living, researchers have found that 8 in 10 employees report worrying about their FWB to varying extents. Moreover, nearly 80% employees believe that stress around FWB negatively affects performance in the workplace, yet they are reluctant to discuss their financial concerns. Also, scholarly work remains scarce in this area to address this heightening issue of employees.

Evidence from countries such as Netherlands, China, Malaysia, Russia and the USA has highlighted the growing importance of FWB arising from FL and enhanced RPB in the context of employees (Agnew et al., 2013; Almenberg et al., 2011; Boisclair et al., 2015; Case & Klapper, 2011; Niu & Zhou, 2018; Van Rooij et al., 2011). However, a large disparity exists in confronting the increasing relevance and need of resolving the FWB problem in India despite the country having the greatest growth rate among the world’s dominant economies, particularly among the working human capital (Dutta, 2017). To the best of the researchers’ knowledge, Indian economy needs to be explored in this area.

Further, to address this significant gap, employees of the Indian IT sector have been chosen for the study. The reason for selecting the IT sector can be justified in that the stress level experienced in the IT sector is disproportionately higher than that experienced by people working in other businesses, with coping with and managing financial problems taking up a substantial portion of their time (Jha et al., 2024; Mandal & Pal, 2024; Subikshaa & Shoba Jasmin, 2018). Additionally, because of the working circumstances and pressure, most employees are not engaged in their finances (Neha et al., 2022). So specifically, the association between FL and FWB coupled with RPB should be exceptionally significant for this industry (Faezah et al., 2017; Mustafa et al., 2017; Vinmalar, 2018).

To address this existing gap, the study proposes to explore the intricate linkages between FL and FWB with the mediating effect of RPB, where FL could equip employees with the understanding and abilities essential to engage in adept retirement planning, thereby improving their FWB. Therefore, our study intends to address the following research questions:

RQ1: What is the effect of financial literacy levels on attaining employees’ financial well-being?

RQ2: What is the intervention/mediating effect of retirement planning behaviour on the financial literacy-financial well-being relationship?

The novel contribution of the study can be encapsulated as (a) exploring the financial aspect, that is, the FL concept, in the existing literature of FWB of employees, especially in the Indian IT sector; (b) elucidating the intricate financial antecedents of employees’ FWB with the illustration of the mediating portrayal of RPB in the FL-FWB relationship; and (c) testing the proposed hypothetical model empirically on account of dearth in prior literature on FWB in the Indian context.

Financial Well-being

A sense of tranquillity, security and calmness from a financial perspective gives way to an individual’s FWB. A positive financial perspective leads to enhanced FWB; in response, an increased understanding of FWB has ramifications for individuals, society and organizations (Brüggen et al., 2017) as they accomplish their basic financial demands (Dzogbenuku et al., 2022). Conversely, the oversight of FWB may induce financial anxiety, which can escalate an employee’s psychological and emotional concerns. Therefore, FWB boosts living standards, alleviating risks of dire financial concerns.

The achievement of self-satisfaction with one’s current financial situation, the assurance of covering everyday living expenses and emergency costs, the financial flexibility to pursue one’s interests and the confidence in one’s future retirement, empowering to experience financial contentment, is what FWB is all about (CFPB, 2015; Mahdzan et al., 2020). FWB can be enhanced with a better financial planning attitude (Philippas & Avdoulas, 2020a).

Financial Literacy and Financial Well-being

The capacity to employ knowledge and skills to efficiently manage monetary resources to ensure financial stability for the duration of one’s life can be achieved successfully through FL (President’s Advisory Council on Financial Literacy, 2008). In recent decades, FL as a financial resource-managing skill (Hung et al., 2009; Kaur et al., 2022) has emerged as the most extensively researched domain in the globe for improved livelihood and well-being (Agnew et al., 2013; Behrman et al., 2010; Hassan Al-Tamimi & Anood Bin Kalli, 2009).

Gaining the potential to hedge themselves against economic shocks and associated risks, individuals possessing the basic FL are more inclined towards achieving financial goals and eventually contributing to FWB. The relationship between FL and FWB has been tested in the context of other countries, mostly Malaysia, Australia and Greece, where positive associations have been demonstrated between the two constructs (Philippas & Avdoulas, 2020a; Sabri & Falahati, 2012; Tahir et al., 2021); however, studies have yet to be conducted in lower-middle income countries like India. Researchers have found positive and frequent linkages between the understanding of basic financial concepts and higher levels of FWB (Grohmann, 2018; Joo & Grable, 2004; Lee et al., 2020; Limbu & Sato, 2019; Shen et al., 2016).

H₁: Financial literacy has a positive and significant effect on financial well-being.

Financial Literacy and Retirement Planning Behaviour

The theory of life cycle hypothesis (LCH), proposed by Ando and Modigliani (1963), addresses planning for the short- and long-term future by individuals based on their income, which asserts that people endeavouring to smoothen lifetime consumption need to comprehend financial products amidst the diverse range of financial products (Deaton, 2005; Tomar et al., 2021). This calls for understanding financial terms; since studies have highlighted that for efficient financial planning, both short term and long term, and preparing for retirement, a certain level of FL is critical (Ayu Lestari et al., 2020; Lusardi & Mitchell, 2011; Safari et al., 2021), hence, as supported by prior studies, the LCH theory has been considered as the underlying theory to understand the criticality of FL to create efficient RPB in employees (Vivel-Búa et al., 2019).

An extensive foundational premise is that improved knowledge of various financial instruments lessens information-collecting and -processing costs and the psychological and fiscal angst associated with engaging in financial markets and preparing for retirement. Consequently, increased FL hastens the development of retirement plans and the implementation of financial decisions (van Rooij et al., 2012). Preceding studies reconnoitring the link between FL and designing retirement plans (Dvorak & Hanley, 2010) have revealed that people and young adults with moderate income and education have high levels of retirement anxiety (Hayslip et al., 1997) due to a dearth of information about retirement caused by a lack of knowledge of financial notions (Mitchell & Moore, 1998).

H₂: Financial literacy has a significant and positive effect on retirement planning behaviour.

Retirement Planning Behaviour and Financial Well-being

Retirement planning, identified as ‘a goal-oriented attitude in which individuals spend the effort to prepare for their retirement life’ (Yeung & Zhou, 2017), has the ability to alleviate retirement concerns, control stress and strengthen retirement readiness and morale. To attain this preparedness for eventual security in later years, acquiring insights into FL is intrinsic, as this gives way to FWB. FWB is one of the most formidable matters of contention in societal financial management. Simply put, it can be comprehended as reaping financial security and the economic independence to make prudent financial decisions now and in the future (CFPB, 2015).

Prior studies reveal that low levels of financial literacy lead to deficit planning behaviour, thereby percolating into dissatisfaction in FWB issues, since there exists a high correlation between FL and FWB in retirement as those who strategize for the future and establish long-term aspirations reflect better FWB (Hung et al., 2009; Lusardi & Mitchell, 2008; Xiao & O’Neill, 2018). This has been supported by similar findings in North Carolina (Clark et al., 2021) and Ghana (Adam et al., 2017), which have proposed that by actively planning for retirement, employees can experience greater financial stability and a higher quality of life both during their working years and throughout their retirement (She et al., 2023).

H₃: Retirement planning behaviour of employees has a positive and significant impact on their financial well-being.

The Mediating Role of Retirement Planning Behaviour

Pahlevan Sharif et al. (2020) have highlighted that FL promotes the efficient management of financial resources, which boosts FWB, implying that the capacity to handle monetary resources may intervene in the direct relationship between FL and FWB. Further, it has been discovered that individuals possessing high levels of FL and a proclivity to set long-term financial objectives exhibit a strengthened positive relationship between their financial knowledge and FWB (Lee et al., 2020).

Financial behaviour specifying money management capabilities and strategies (Sabri & Falahati, 2012) pertains to how an individual can handle financial and income situations (Saurabh & Nandan, 2018). Financial behaviour has been illustrated to be a vital aspect of FWB in earlier studies, with individuals who exhibit positive financial behaviour, such as financial planning, avoiding risky financial decisions, regulating their expenses and abstaining from or indulging in compulsive buying, being far more inclined to be financially secure (Chavali et al., 2021; Joo & Grable, 2004; Shim et al., 2009). On the contrary, prior research has consistently identified challenges among young working adults in effectively managing finances and strategically planning expenditures to meet both immediate and long-term financial obligations, as well as fulfilling their needs and desires (Sabri et al., 2022). This hampers their sense of well-being, thus exhibiting the need to address the importance of RPB to enhance their FWB.

Even though abundant literature has demonstrated the direct positive effect of financial behaviour on FWB and its intervention effect on the FL-FWB association (Fan & Henager, 2022; Gutter & Copur, 2011; Sabri et al., 2022; She et al., 2022; Xiao et al., 2014). The mediating effect of retirement planning behaviour (RPB) which reflects the future-oriented dimension of financial behaviour through which individuals utilize their financial knowledge and skills to improve their financial well-being (FWB) has not been studied. Despite extensive evidence on financial behaviour as a mediator, limited research has specifically examined RPB as a distinct mediating mechanism, particularly in emerging economies such as India.

Therefore, drawing from the TPB; Ajzen, 1991) and the future perspective theory (Percy & Elizabeth, 2011) coupled with available existing literature support, it can be established that increased FL among employees enhances their understanding of the significance of retirement planning and the diverse strategies at their disposal, thereby increasing the likelihood of their active engagement in RPB (Fan et al., 2022; Tomar et al., 2021), such as saving for retirement and making informed investment decisions, which in turn lead to financial security, reduced financial stress and a synergized effect to bring about better overall sense of well-being. In this context, our study attempts to investigate the vital mediating effect of RPB in finding a link between FL and FWB, which serves as a catalyst in leveraging employees’ financial knowledge and skills to enhance their overall FWB.

Thus, we formulate the following hypothesis:

H₄: Retirement planning mediates the relationship between financial literacy and financial well-being.

Hypothesized Model

Figure 1 highlights the conceptual framework of the study based on the above literature, where each of the hypotheses, H₁ to H_4, is clearly outlined in the model.

Figure 1. Conceptual Framework.

Research Design

For the purpose of this study, a cross-sectional and quantitative approach was adopted to explore the association among FL, FWB and RPB and the mediating role of RPB in the intertwining relationship between FL and FWB.

The target respondents of the study were working professionals employed in the top five Indian IT sectors based in Kolkata, the state capital of West Bengal, India, for empirical validation. Kolkata has been selected as a sample space for the study because of the following reasons: first, the city’s diaspora has spurred it to foster creativity connected with technology, making it an important rising centre for IT outsourcing in eastern India (Tiwari, 2023). Second, being one of the least-paid cities in the IT industry, with a yearly average estimated at $3,600-$4,500, there has been a recent spurt of IT companies in this metro city, employing more than 150,000 employees (Irascu, 2023); thus, a generalization can be drawn.

Survey Instruments

Sampling and Data Collection

A self-administered questionnaire was constructed and a convenience sampling technique was adopted for collecting data (Sedgwick, 2013; Stratton, 2021). The minimum age criterion for the participants was 18 years. Additionally, participants were informed that their participation in the survey was completely optional and that their answers would be used solely for research purposes.

Initially, we distributed 400 questionnaires and followed up with e-mails and personal calls to encourage responses over a 3-month period. The data collection process extended to almost three and a half months, resulting in 370 responses. After carefully reviewing and excluding irrelevant or incomplete information, we retained 352 data sets for further analysis.

Raykov and Marcoulides (2006) suggest that ‘the sample size should be at least ten times greater than the number of free parameters in the proposed model’. In our study, to ensure the adequacy of our sample size, we employed 19 variables, implying that 270 observations would be sufficient; thereby, our sample of 352 data exceeds this requirement, highlighting data adequacy.

Common Method Bias

To mitigate the issue of common method bias, survey questions were meticulously designed to be clear and straightforward, enhancing respondents’ understanding (Podsakoff et al., 2003), and respondents were also assured of the confidentiality of their responses (Chang et al., 2010), thereby ensuring their honest responses. For further assessing this bias, Harman’s single-factor test was used, where the results explained only 37.711% of the variance, below the recommended threshold of 50%, exhibiting a poor fit for the single-factor solution (Podsakoff et al., 2003). To further validate the absence of common method bias, the variance inflation factor (VIF) was calculated. Notably, the VIFs for all the study variables (ranging from 1.365 to 2.349) were well below the suggested cut-off of 3.3, as outlined by Kock (2015).

Respondents’ Profiling

A total of 54.6% males and 45.4% females participated in the survey. A majority of employees (42.6%) were within the age range of 26-33 years, followed by less than 41 years and more than 34 years, with 22.7% representation in the sample. The rest were as follows: 14.8%, 13.1% and 6.8% constituted the age range 18-25 years, 42-50 years and 51 years and above, respectively.

Educational levels showed that 61.1% were post-graduates, 28.1% were graduates, 5.7% were under-graduates and 5.1% had other qualifications. Income levels of the employees were divided into four categories as depicted in Table 1.

Measurement Model Assessment

In PLS-SEM analysis, the measurement model analysis is the initial step to ensure reliability and validity of the data.

The results of CFA exhibited an SRMR value of 0.07, which is below the threshold limit of 0.08, suggesting the fitness of the measurement model (Henseler et al., 2015). Further, the item factor loadings were found to be well above 0.50, which seemed adequate for our study (see Table 2; Hair et al., 2020).

All the constructs exhibited Cronbach’s α ranging from 0.792 to 0.889, thereby demonstrating the values to be satisfying the criterion of threshold level of 0.70 (Nunnally, 1978). To further confirm the reliability of the measures, the values of CR for all the constructs ranged from 0.857 to 0.91, showing strong internal consistency and construct reliability (Hair et al., 2020). The values of AVE of each construct range from 0.53 to 0.569, indicating that the latent variable effectively accounts for more than half of the variance found in its associated indicators, thus establishing the convergent validity of the construct (Hair, Sarstedt, et al., 2014).

For discriminant validity, two measures have been put forward—the HTMT ratio and the Fornell-Larcker criterion (Henseler et al., 2015).

‘HTMT threshold levels suggest the values to be less than or equal to 0.90’ (Henseler et al., 2015; Mitra & De, 2024), as highlighted by the results, thus establishing the existence of discriminant validity (Jha et al., 2023). The results of the discriminant validity test utilizing Fornell and Larcker’s (1981) measure are also shown in Table 3.

Figure 2. Measurement Model Analysis.

Structural Model Analysis

Following the satisfactory assessment of the measurement model, the next phase in evaluating PLS-SEM results was scrutinizing the structural model. The assessment criteria of structural model include the coefficient of determination (R²), addressing the multi-collinearity issue (VIF) and hypothesis testing through path coefficient significance level (Hair et al., 2013). Additionally, the model’s ability to make predictions beyond the data set using the PLS predict procedure has also been evaluated (Shmueli et al., 2019).

To assess multicollinearity, VIF was examined, where the values ranged from 1.365 to 2.349, thus showing all the values below the suggested threshold level (Hair et al., 2019). Therefore, multi-collinearity was not a concern in this study.

The coefficient of determination, R², was estimated, highlighting that the model explains 59.5% of the variance in RPB and 22.2% variance in employees’ FWB, thereby indicating moderate in-sample explanatory power of our model (Hair et al., 2011). For the predictive accuracy of the PLS path, the Stone-Geisser’s Q² is calculated as 0.202 for RPB and 0.577 for FWB, suggesting a moderate and strong predictive relevance for the path model (Hair et al., 2019).

Next, to evaluate the statistical significance of the hypothesized relationship, the bootstrapping procedure was adopted with 5,000 bootstrap samples, no sign changes option and 95% bias-corrected confidence interval.

The results of the path coefficient analysis highlight that all the path coefficients have significant and positive impacts, thereby supporting all the proposed hypotheses (see Table 4 and Figure 2).

Mediation Analysis

Furthermore, H₄ postulates that RPB mediates the relationship between FL and FWB. In this regard, this intervention analysis has been assessed by investigating the indirect path between FL and FWB via RPB. Following the recommendations of Preacher and Hayes (2008), the findings show that the confidence intervals of the upper limit (95%) and the lower limit (5%) of the mediated relationship (H₄) do not include zero, indicating the positive significance of the relationship and thereby supporting the hypothesis.

To examine the mediation effect, ‘the beta coefficient of independent-mediating and mediating-dependent variables is multiplied’.

The indirect path between FL and FWB through RPB was significant (β = 0.471 ´ 0.269 = 0.127, t = 3.6, p < .001, LL = 0.074, UL = 0.187), whereas the total effect (β = 0.734, t = 22.336, p < .001) along with direct effect (β = 0.607, t = 12.189, p < .001) after introducing the mediator was also significant.

Hence, the result confirms the complementary partial mediating role of RPB in association with FL and FWB. Therefore, H₄ is being accepted. A detailed result of the mediation analysis has been displayed in Table 5 and Figure 3.

Figure 3. Bootstrapping (t Value) for the Model.

Source(s): Authors own work (output using SmartPLS 4.0).

Major Findings

Our study is one of the primary empirical studies that has attempted to scrutinize the FL and FWB relationship in the context of Indian IT sector employees using RPB as a mediator. Promoting employees’ FWB and making them aware of the benefits of planning ahead for retirement is important because of its far-reaching impact on a country’s economy. Additionally, the FWB aspect of employees has been scarcely discussed in the context of Indian working professionals.

The current study verifies the paradigm of FL and FWB to explain employee status in terms of RPB. The findings of the study provide evidence for positive and significant impacts of all the proposed hypotheses of the model. The study makes several significant theoretical contributions by introducing novel concepts, advancing existing frameworks and enhancing our understanding of the subject matter.

The results of this research demonstrate that FL has a substantial impact on FWB of employees (H₁; β = 0.607, t = 12.189, p < .001), aligning with the results of prior studies by Grable and Lytton (1998) and Narges and Laily (2011). In the Indian IT sector, where tumultuous cut-throat competition exists, employees face burnout in balancing the management of their financial resources along with the tremendous work pressures that have a cascading impact on their level of FWB. Therefore, understanding the criticalities of financial horizons would act as an anchor for the working population to keep the financial constraints at bay and attain holistic FWB.

As for H₂, the results propound that FL has a positive and significant impact on the RPB of employees (β = 0.471, t = 7.398, p < .001). The LCH supports the idea of the criticality of FL for RPB, forming the basis of our findings (Case & Klapper, 2011; Safari et al., 2021). Existing literature studies have revealed that financial knowledge and acquired abilities have a positive relationship with their planning behaviour regarding their pre- and post-retirement phases (Bucher-koenen & Lusardi, 2011; van Rooij et al., 2012). Our study, which has attempted to investigate this effect with regard to Indian IT sector employees, has also found similar findings of the significant relationship of FL with RPB. Employees who are miscalibrated about their FL make suboptimal financial decisions, affecting their long-term planning behaviour. FL empowers employees by equipping them with the knowledge and understanding of retirement planning concepts, facilitating informed decision-making, realistic goal setting, active savings and appropriate investments. Additionally, it enables employees to evaluate risks and implement risk management strategies, leading to enhanced RPB and better preparation for unforeseen circumstances.

Based on TPB (Ajzen, 1991) and the future time perspective theory (Percy & Elizabeth, 2011), the findings of H₃ revealed significant results of the impact of RPB on employees’ FWB (β = 0.269, t = 4.356, p < .001). Our research findings align with the earlier results of Kadir et al. (2020) and Noone et al. (2009). Involvement by the employees in early planning for post-retirement phases would not only help in alleviating their financial stress but also benefit in smoothening their financial security in later years. Concisely, engaging in retirement planning is crucial for employees’ FWB, offering benefits such as security through saving and investing, goal achievement, preparedness for retirement, improved decision-making skills and reduced financial stress, leading to enhanced overall well-being.

Finally, in H₄, RPB was assessed as an intervening construct in the FL-FWB association. The path analysis results demonstrated a complementary partial mediation effect of employees’ RPB, which conforms with prior studies showing an association between FL and RPB (Boisclair et al., 2015; Niu & Zhou, 2018) and RPB and FWB (Kadir et al., 2020; Xiao & O’Neill, 2018), thereby highlighting that FL equips employees with knowledge and skills, enabling them to engage in effective RPB, thus enhancing their FWB, resulting in a positive relationship between FL and overall FWB.

Managerial Implications

The empirical results suggest that organizations need to transition from their conventional role to intervene and support their employees regarding their financial concerns and long-term security. For IT services, this is the most sought-after. Employers must include FWB as a key part of the overall workforce well-being strategy. They may bring on site third-party vendor support as financial counsellors and educators who can identify at-risk employees and provide customized retirement incentives by understanding their financial priorities. Organizations can also set up in-house financial counselling centres to help employees identify the need for FL to plan for their retirement and its cascading consequences on their post-retirement well-being. Overall, recognizing and leveraging the mediating effect of RPB can lead organizations to promote FL, provide retirement benefits and support, prioritize employee FWB and enhance retirement readiness. These efforts contribute to a more engaged and financially secure workforce, ultimately benefiting both employees and the organization as a whole.

Policy Implications

At the national level, financial educators and practitioners who can strategize and administer targeted staff training programmes may be designated. This will correspond with the various stages of their life cycles, skill levels and information needs, reinforcing the necessity of FL. Furthermore, a comprehensive long-term financial security scheme would be designed to consider both objective and subjective markers of FL and their well-being to more effectively assess the programmes’ true effects on the targeted audiences. The findings of the partial mediating impact of RPB provide implications for the government, where future planning pro-environment can be created via incentives targeted towards specific income groups or populations with lower levels of FL. This will establish regulations and standards for financial advisors to ensure they provide accurate and unbiased retirement planning advice, provide incentives or create regulations that encourage employers to prioritize employee FWB through retirement planning support and provide safety nets for individuals who may face challenges in retirement planning despite their efforts, such as accessible pension schemes, government-funded retirement benefits and social assistance programmes. These policies would aid in building a holistic and self-subsistence formal financial economy.

Limitations and Scope for Future Research

Even with the study’s significant contributions, it is crucial to acknowledge its limitations. The scope of the study is limited to the Indian IT sector based in Kolkata. Future research can explore other service industries, such as banking, healthcare and educational institutions. Second, the data were obtained through a Web-based survey utilizing non-probability sampling that was not stratified by nation or organization size, increasing the likelihood of impacting data quality. Finally, longitudinal studies can be a better approach in future studies that may determine the time-based interactions of the study variables.

Further, studies related to other scopes of finance affecting an individual, such as financial resilience, financial self-efficacy, financial vulnerability, financial capability and financial socialization agents, can be explored as mediators and moderators for better model conceptualization.