Effect of Financial Capabilities on SME Well-Being in Indonesia: The Moderating Role of Financial Stress

Abstract

Introduction: Small and Medium Enterprises (SMEs) contribute significantly to Indonesia’s economy but face challenges in managing their financial resources effectively. Financial capability, defined as the ability to manage finances through budgeting, planning, and informed decision-making, is considered vital for SMEs sustainability. However, financial stress arising from economic uncertainties may weaken this positive effect on SMEs well-being.

Objectives: This study aims to investigate the impact of financial capability on the financial well-being of SMEs in Indonesia and to examine how financial stress moderates this relationship.

Methods: A quantitative research method was employed using a cross-sectional survey of 220 SMEs in Indonesia. Financial capability, financial stress, and SMEs well-being were measured through validated scales and analyzed using multiple regression with Hayes' PROCESS macro to test moderation effects.

Results: The findings show that financial capability has a significant positive effect on SME well-being, explaining 73.2% of its variance. However, financial stress significantly moderates this relationship by weakening the positive impact of financial capability. High levels of financial stress reduce SME owners’ ability to leverage financial capabilities effectively, leading to poorer well-being outcomes.

Conclusions: While financial capability enhances SME well-being, high financial stress diminishes these benefits. Thus, interventions for SMEs should not only focus on improving financial literacy but also integrate strategies to manage and reduce financial stress.