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The nature and determinants of the weaalth portfolios of salaried middle and upper income employees in Kenya

Author: Muia, Julius Monzi

Awarding University: University of Nairobi, Kenya

Level : PhD

Year: 2005

Holding Libraries: University of Nairobi Jomo Kenyatta Memorial Library ;

Subject Terms: Personal income ; Wealth management ; Wages and salaries ; Social classes ; Employees ;


Personal wealth as denoted by accumulated net assets is a key ingredient of a people's standards of living. This is because wealth facilitates consumption, especiaJly in old age, cushions people against adversities such as illness and unemployment as well as, enables further wealth creation through access to bank credit. The assets that comprise wealth include cash and bank balances, properties, shares in cooperatives and listed companies, life assurance policies, accrued pension benefits, corporate bonds, and treasury bi11s and bonds. Whereas modern portfolio theory (MPT) suggests that investors should aim to maximize their wealth and hold diversified portfolios, life-cycle hypothesis (LCH) maintains that people should target a smooth consumption path in their lifespan, respectively. Yet, empirical evidence from developed countries shows that personal wealth portfolios consist of few assets, are inadequate to support retirement consumption and are very dissimilar with respect to holders' personal attributes. The lack of knowledge on the diversification, adequacy and determinants of personal wealth portfolios in developing countries makes it difficult to appreciate, and formulate appropriate policies for enhancing the wealth holdings of the citizens for improved standards of living. This study is designed to address this research gap. The study examines the sizes and composition of the wealth portfolios of employees in order to: a) establish whether they are diversified; b) ascertain the wealth adequacy; c) find out which personal attributes are key determinants of the portfolios; and d) develop descriptive wealth holding models. A composite conceptual framework integrating the theoretical models of LCH, MPT and Sociological Approach was developed and used in this study. The above informed the use of a deductive research design that guided the development of suitable research hypotheses which were tested using empirical data to realize the study objectives. The target population for the study comprised aJl the salaried middle and upper income employees in Kenya. In this survey, questionnaires were administered on a random sample of 1,067 salaried middle and upper income employees drawn from a stratified random sample of large institutions. A response rate of 75 % was achieved. Data coJlected on personal wealth levels and personal attributes was analysed and tested for independence and correlation using statistical tests such as Analysis of Variance, Pearson product-moment coefficient, and Multiple regression analysis, among others. The study establishes that the sampled employees hold under-diversified wealth portfolios. Firstly, they do not hold equal proportions of all the asset types in the market as stipulated under narve diversification (Camner, Mankiw & Weil, 1997; DeMiguel, Garlappi & Uppa, 2009). The wealth portfolios are dominated by cash and property with mean proportions of 57% and 36%, respectively. They are also simple; the mean number of assets held is three with the top three assets accounting for 87% of the wealth values. Secondly, the mean shareholding of equity investors is three listed companies against a recommended minimum of 11 listed firms. These findings contradict theory but are in line with empirical evidence from documented personal wealth studies in developed countries. In common with other studies, this research finds that the sampled employees may not have adequate wealth to meet their consumption needs while in retirement. This is based on the findings that the mean proportion of the employees' estimated retirement income to current employment income, also referred to as the replacement rate, is 43 %. This rate is significantly lower than the recommended minimum of 70 %. The study establishes that the quantitative personal attributes that are the main determinants of wealth size are employees' income, age, proportion of risky assets held, inherited wealth and savings rate. Also, the ma