Financial behaviour and financial wellbeing of MSMEs actors: The role of financial literacy and cognitive factors

Abstract

That financial literacy and psychological characteristics are important determinants of financial decisions have long been recognized in the literature. By focusing on Micro Small Medium Enterprises (MSMEs), this study investigates the extent to which financial behaviour and financial well-being consisting of both financial security and financial anxiety can be explained by financial literacy and cognitive factors such as self-control, optimism, and deliberative thinking. Several demographic factors such as gender, age, educational background, and the length of engaging in MSMEs, as well as the characteristics of MSMEs such as industry and monthly sales turnover are functioned as control variables. Data were collected using a questionnaire that was purposively distributed to MSMEs' actors and analysed using Partial Least Square-Structural Equation Modeling (PLS-SEM). In total, 155 samples were analyzed. The analysis shows that financial behaviour can be explained by deliberative thinking, financial security can be explained by financial literacy and optimism, while financial anxiety can be explained by self-control. Financial behaviour was also found to have a positive direct effect on financial security and financial anxiety. Thus, to improve the financial well-being of MSMEs' actors, it may be necessary to improve their personal financial management skills that can lead to the positivity of financial behaviour.

Financial Literacy and Performance of Micro, Small and Medium Enterprises: A Literature Review

“…Research has shown that the longer the involvement of MSMEs, the higher the level of financial literacy (Aeni & Innayah, 2022). In addition, the level of education has also been identified as a factor that influences the application of accounting in the preparation of financial reports, indicating a relationship between education and financial literacy (Rafik & Rahayu, 2020). These findings suggest that as MSMEs gain more experience and knowledge through their years of work and education, their financial literacy increases.…”

“…In contrast to research (Suryanto & Rasmini, 2018) found that age had no effect on literacy levels finance among MSMEs in Bandung. These findings suggest that age may have varying effects on MSME financial literacy, depending on the specific context and demographic characteristics of MSME actors (Rafik & Rahayu, 2020).…”

Self-Efficacy and Financial Literacy Influencing Employee Performance of West Sumatera Merchant Marine Polytechnic

“…Furthermore, employee performance is also influenced by financial literacy because of some reasons. First, by having good literacy on financial, an employee will be more focus on his/her performance, (Rafik & Rahayu, 2020). Second, financial literacy is a basic knowledge about financial that everyone should have to earn a good job performance, (Eliza & Susanti, 2020).…”

Financial Literacy and Financial Performance of Micro, Small and Medium Enterprises in Lagos City, Nigeria

“… Budget preparation,  Understanding the effect of inflation and understanding how to access finance at minimum cost, among others (Ibrahim, 2017;Patrick, 2015) Ismail et al (2017 highlighted that managers with very high levels of financial behavior are more inclined to make good use of their organization's financial resources, such as effectively controlling the inflow and outflow of money. For example, Rafik & Rahayu (2020) noted that the preparation of an effective budget is highly dependent on proper bookkeeping, which also provides businesses with the opportunity to be able to pay their obligations on time and also collect their debts within a reasonable time frame. Financial education is the major factor determining an individual's financial behavior level in managing financial resources.…”