The Influence of Digital Financial Literacy on Indonesian SMEs’ Financial Behavior and Financial Well-Being

Abstract

Purpose:  This study investigates the multifaceted impact of digital financial literacy on the financial well-being of Small and Medium-sized Enterprises (SMEs). Recognizing the pivotal role of digital financial literacy in contemporary business landscapes, we explore how SMEs' comprehension and utilization of digital financial tools influence their financial behavior and, subsequently, their overall financial well-being.   Theoretical framework:  Drawing on a comprehensive literature review, we delve into the various dimensions of digital financial literacy, including access to capital, financial management practices, risk mitigation, and market expansion. The research also examines the mediating role of financial behavior, elucidating how informed decision-making, efficient budgeting, and adept financial management act as crucial intermediaries in the relationship between digital financial literacy and SMEs' financial well-being.   Design/Methodology/Approach: The study used quantitative method with online questionnaires as data collection tool. The population in this study was SMEs owner in Indonesia, focusing in four cities: Medan, Surabaya, Makassar, and Bali.  The sampling technique employed was purposive sampling, involving a total of 186 respondents. The collected data underwent analysis through the Partial Least Square-Structural Equation Model (PLS-SEM).   Findings: The results of data analysis indicate that digital financial literacy significantly affects financial behavior as well as SMEs’ financial well-being. Financial behavior significantly affects SMEs’ financial well-being, as well as plays the mediating role between digital financial literacy and SMEs’ financial well-being.   Research, Practical & Social implications:  The findings of this study carry profound implications for both academics and practitioners in the realm of business and finance. One key implication is the critical role of education and training programs aimed at enhancing digital financial literacy among SME owners and stakeholders. Moreover, the findings underscore the importance of fostering an environment conducive to digital financial literacy adoption.   Originality/Value:  The findings of this study hold significant implications for policymakers, financial institutions, and SME owners seeking to foster economic resilience and growth in the digital era. Through empirical investigation and data analysis, this study provides actionable insights that contribute to the advancement of digital financial literacy initiatives, ultimately enhancing the financial well-being of SMEs in an increasingly digitized business environment.