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FINANCIAL PLANNING FOR SALARIED EMPLOYEE AND STRATEGIES FOR TAX SAVINGS IN FEDERAL COLLEGE OF EDUCATION, PANKSHIN

CHAPTER ONE

INTRODUCTION

Background to the Study

In today’s rapidly changing economic landscape, financial stability and preparedness have become paramount for individuals, especially salaried employees. Salaried employees represent a significant portion of the workforce and often face unique financial challenges and opportunities. With the increasing complexity of tax regulations, diverse investment options, and the need to plan for retirement, there is a growing need for comprehensive financial education and guidance tailored specifically to this demographic. Global economic shifts, technological advancements, and demographic changes have reshaped the traditional career trajectory. Salaried employees now encounter a more dynamic work environment with varying income sources, making financial planning an intricate task. Additionally, the proliferation of the gig economy and self-employment opportunities necessitate a flexible and adaptive financial approach.

Financial planning is the process of achieving life goals through sound financial management. It is the process by which a person determines where they are now (financially), where they want to be in the future, and what they will do to get there (Akinyomi, Arogundade & Salawu, 2019). Financial planning gives people’s financial decisions direction and meaning. It enables a person to comprehend how each financial decision they make affects other aspects of their finances. Purchasing a specific investment product, for example, could help you pay off your mortgage faster or drastically postpone your retirement. Each financial decision can be considered in terms of its short and long-term effects on one’s life goals when seen as a whole. A person can also adapt to life changes more readily and feel more confident that their goals are on track.

According to Olatubi and Ogunkoya (2018) Financial planning is a systematic and strategic process that empowers individuals to manage their financial resources effectively, set and achieve financial goals, and secure their long-term financial well-being. It encompasses a range of activities, including budgeting, investment, retirement planning, risk management, and estate planning, all aimed at optimizing financial resources and ensuring a stable and prosperous future. At the core of financial planning lies budgeting, a practice that involves creating a detailed plan to outline income and expenses. This process helps individuals allocate funds to essential needs, savings, investments, and discretionary spending. A well-structured budget serves as a roadmap for financial decisions, guiding individuals to live within their means while working toward financial goals (Bird & Gendron, 2017). It empowers individuals to prioritize expenses, make informed spending choices, and maintain control over their financial resources. Investment on the other hand is also a pivotal aspect of financial planning, enabling individuals to grow their wealth over time (Adejumo & Babajide, 2018). Crafting effective investment strategies involves carefully selecting appropriate assets, diversifying portfolios, and considering risk tolerance. By strategically investing in assets such as stocks, bonds, real estate, or mutual funds, individuals can aim to maximize returns while managing risks. Investment strategies are integral to wealth accumulation, retirement planning, and achieving long-term financial aspirations. Furthermore, Odusami and Okoli, (2017) added that Planning for retirement is a critical element of financial planning that involves setting aside funds during one’s working years to ensure a comfortable and secure retirement. It encompasses considerations of retirement age, desired lifestyle, and the selection of suitable investment vehicles, such as retirement accounts. Effective retirement planning ensures that individuals have the financial means to sustain their quality of life during retirement, alleviating concerns about financial stability for salaried employees.

Salaried employees are the bedrock of modern organizations, encompassing a wide spectrum of professions and industries. These individuals receive a fixed regular wage or salary in exchange for their work, usually on a monthly or bi-weekly basis. Unlike hourly wage earners, salaried employees often benefit from the stability of predictable income, which forms the basis of their financial lives. This income serves as a canvas upon which financial planning and management are woven, encompassing expenses, savings, investments, and taxes.  According to Adegbie & Fakile (2017) Salaried employee is an individual who receives a fixed and regular compensation from an employer for the work or services they provide. Salaried employees are often employed under a contract that outlines their job responsibilities, salary amount, benefits, and other terms of employment. Salaried employees are contrasted with hourly wage earners, who are compensated based on the number of hours they work. Salaried positions are common in various industries and sectors, ranging from office jobs, management roles, professional services, and administrative positions to roles in information technology, finance, education, and more. Agboola (2019) supported that one of the distinguishing features of salaried employment is the predictability of income, as employees receive the same amount of compensation in each pay period, regardless of variations in their actual working hours. However, this predictability can come with the expectation that salaried employees may occasionally work beyond regular hours to fulfill their job responsibilities.

Tax is a mandatory financial levy or charge imposed by a government or relevant authority on individuals, businesses, or entities to generate revenue (Ibe & Okoye, 2019). According to the Wikipedia, it describes tax by saying “tax (from the Latin taxo) is a compulsory financial charge or some other type of levy imposed upon a taxpayer (an individual or legal entity) by a governmental organization in order to fund various public expenditures”. A failure to pay, along with evasion of or resistance to taxation, is punishable by law. Taxation is a compulsory contribution to state, federal revenue, which is levied by the government on the workers’ income and business profits, or added to the cost of some goods, services, and transactions. Taxes are unintentional fees imposed on persons or businesses and required by a government unit be it local, state or national. This is done in order to finance government activities and run the country smoothly providing social amenities. In economics, taxes fall on whomever pays the burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business’s goods.

Tax are levied on the citizen to help bring public works and services to live and for the citizen at large. Also, it enables the government to build and sustain the infrastructures used in a country. These are some of the reasons why the government usually tax its individual and corporate occupants’ income and profit. The tax collected is used for the betterment of the economy and all the people living in it the country. In Nigeria and many other countries in the world, taxes are applied to some form of money received by a taxpayer. The money could be income earned from salary, capital gains from investment appreciation, dividends received as additional income, payment made for goods and services, etc (Nwaobia, 2014). Taxation cannot be said to mean other forms of collections as it has its own distinct characteristics, it doesn’t mean the same as market exchanges, in that taxation does not require consensus and is not by any way directly related to any service offered to people. The government obliges taxation through an implicit or explicit threat of force. Taxation is legally different than extortion or a protection racket because the imposing institution is a government, not private actors. A proportion of the taxpayer’s incomes or money is taken and paid to the government. Payment of taxes at rates levied by the state is compulsory.

Taxation systems in Nigeria are intricate and subject to frequent updates. For salaried employees, understanding how to optimize tax strategies legally and efficiently can significantly impact their disposable income and long-term financial goals. The lack of awareness about financial planning and available tax-saving options can result in employees paying more taxes than necessary, diminishing their take-home income and inhibiting their ability to achieve financial goals. Recent surveys show many salaried employees in Nigeria lack basic financial knowledge. Enhance Financial Innovations and Access (EFInA) (2020) survey of financial literacy revealed that many Nigerians Americans did not understand the basic financial concepts and economic data. Less than one-fifth of all respondents passed the test. A 2021 study by the Investor Protection Trust found that only 18% of the investors surveyed were truly literate about financial topics on investing. Most did not know basic financial terms nor were they familiar with the performances of different investments. Only 38%t of surveyed investors knew that when interest rates go up the prices of bonds usually go down (“The Facts on Saving and Investing”, 2018). Currently, in Nigeria, people mainly see financial planning as only a means to invest money in tax-saving instruments. The tax law requires that basic pay and bonuses are fully taxable whilst children’s education allowance and transport allowance are partly taxable. Fortunately, there are myriads of tax exemptions and incentives available under various sections and subsections of the Income Tax Act, 2015 (Act 896). Unfortunately, people do not know about the tax relief available. This has led to a condition where people invest money without actually understanding the reason behind the investments undertaken. The salaried class should be aware of the income tax laws as it relates to income and the reliefs and deduction that are available. It is anticipated that on becoming familiar with the specifics of the law, employees would be able to plan their affairs in a manner to maximize their take-home pay. This study therefore seeks to investigate the Financial Planning for Salaried Employee and Strategies for Tax Savings in Federal College of Education, Pankshin

• Statement of the Problem

Salaried employees within the Federal College of Education (FCE) Pankshin are confronted with a range of intricate financial challenges that collectively hinder their financial stability, growth, and long-term security. These challenges stem from a combination of factors, including limited financial literacy, inadequate tax planning, suboptimal investment practices, and a lack of tailored financial guidance. Firstly, a significant proportion of employees lack fundamental financial literacy skills, resulting in difficulties in understanding and managing essential financial concepts. This deficit in financial knowledge impairs their ability to create and adhere to budgets, make informed investment decisions, and develop effective strategies for achieving their financial goals. Secondly, the complexity of the Nigerian tax system, characterized by its evolving regulations and intricate deductions, further compounds the challenges faced by FCE Pankshin employees. Many employees are not equipped to leverage available tax incentives and deductions, consequently missing out on opportunities to reduce their tax burdens and maximize their disposable income. Additionally, the absence of comprehensive and tailored financial planning strategies leaves employees without a structured roadmap for achieving their financial aspirations. This lack of guidance contributes to a fragmented approach to financial management, leading to potential inefficiencies in resource allocation, underutilization of available financial instruments, and subpar long-term planning. Moreover, inadequate investment diversification and retirement planning exacerbate the

problem. Many employees are unaware of the benefits of spreading investments across various asset classes or lack access to suitable retirement planning resources. This leaves them vulnerable to financial shocks and unprepared for a secure retirement, ultimately impacting their overall financial well-being. Hence, the crux of the issue lies in the need to develop a holistic and tailored approach to financial management and tax planning specifically designed for FCE Pankshin employees.

• Objectives of the Study

The purpose of this study is to investigate on the Financial Planning for Salaried Employee and Strategies for Tax Savings in Federal College of Education, Pankshin. The study will be guided with the following specific objectives:

1. To study the Income saving strategies adopted by salaried employees in Federal College of Education, Pankshin
2. To find out the tax saving strategies adopted by salaried employees in Federal College of Education, Pankshin?
3. To examine the factors influencing the financial planning strategies of tax savings decision of salaried employees in FCE Pankshin
4. To study the influence of financial planning and strategies of tax savings for salaried employees in Federal College of Education, Pankshin?

1.4       Research Questions

1. What is the Income saving strategies adopted by salaried employees in Federal College of Education, Pankshin?
2. What is the tax saving strategies adopted by salaried employees in Federal College of Education, Pankshin?
3. What are the factors influencing the financial planning strategies of tax savings decision of salaried employees in FCE Pankshin
4. What is the influence of financial planning and strategies of tax savings for salaried employees in Federal College of Education, Pankshin?
   • Research Hypothesis

Ho: There is no significant relationship between financial planning and strategies of tax savings and financial stability of salaried employees in FCE Pankshin

H₁: There is significant relationship between financial planning and strategies of tax savings and financial stability of salaried employees in FCE Pankshin

• Significance of the Study

The study on financial planning and tax-saving strategies for salaried employees in Federal College of Education, Pankshin will hold substantial significance for a range of stakeholders, including salaried employees themselves, financial institutions, the government, society, and researchers.

For salaried employees in FCE Pankshin, the study’s outcomes and recommendations offer the promise of improved financial well-being. By providing insights into effective financial management, budgeting, and goal planning, the study can alleviate financial stress and facilitate more secure futures. Additionally, the exploration of tax-saving strategies can empower employees to legally optimize their tax liabilities, resulting in augmented take-home pay and enhanced financial stability.

Financial institutions stand to benefit from the study as well. The insights garnered can inform the design of tailored financial products and services that cater specifically to the unique needs and aspirations of salaried employees. This could encompass an array of offerings, including investment opportunities, loan packages, and retirement planning solutions that align with the financial goals identified in the study.

From the government perspective, the study carries the potential to bolster tax compliance rates. By disseminating knowledge about lawful tax-saving avenues, the study contributes to increased adherence to tax regulations. Furthermore, the study’s focus on promoting financial literacy aligns with governmental efforts to cultivate responsible financial behavior, thereby fostering enduring economic stability.

At the level of society, the study holds the promise of easing financial burdens on families. Armed with effective financial planning and tax-saving strategies, employees can cultivate financial resilience, thereby lessening the strain on social safety nets. Moreover, the potential for a more productive workforce emerges, as improved financial stability translates to enhanced focus and productivity within the workplace.

For the community of researchers, the study’s implications are twofold. It enriches the existing knowledge base concerning financial planning and tax-saving strategies, particularly within the context of salaried employees in educational institutions like FCE Pankshin. Furthermore, the study provides a valuable springboard for future research endeavors, including investigations into the efficacy of financial education initiatives, the influence of tax policies on employee behavior, and the role of financial institutions in advancing financial well-being.

• Scope of the Study

The study will be focused on Financial Planning for Salaried Employee and Strategies for Tax Savings in Federal College of Education, Pankshin. It will be confined to salaried employees in FCE Pankshin.

1.8       Definition of Operational Terms

Financial Planning: The process of setting and achieving financial goals through effective management of income, expenses, investments, and assets.

Tax:  Tax is a mandatory financial levy or charge imposed by a government or relevant authority on individuals, businesses, or entities to generate revenue.

Tax Savings: Strategies and techniques used to legally reduce the amount of taxes paid, thereby maximizing disposable income.

Financial Literacy: The ability to understand and make informed decisions about personal finances, including budgeting, investing, and tax planning.

Salaried Employees: These are salary workers in Federal College of Education, Pankshin

(FCE Pankshin): located in Pankshin, Plateau State Nigeria.