The Effect of Financial Literacy towards Financial

Management Behavior of MSME: A Study on MSME

Administrators in Karawang Regency

Kholida Atiyatul Maula, and Harpa Sugiharti

University of Singaperbangsa Karawang, Indonesia

Abstract. Financial literacy is not limited to the definition of knowledge, skills

and confidence towards the institution and financial products and systems only,

but also the attitude and behavior that can give an effect in improving the

financial literacy. The purpose of this study was to determine the effect of

financial literacy on financial management behavior of MSME in Karawang

Regency. Respondents in this study were 100 MSME administrators in Karawang

Regency through a questionnaire. Based on the results, financial literacy effects

on financial management behavior of MSME in Karawang Regency. The

indicators used to measure financial literacy are basic knowledge of finance,

savings and loans, insurance and investment. The indicators of basic knowledge

of finance and investment have significant effects towards financial management

behavior of MSME, while savings & loans and insurance doesn’t effects on

financial management behavior of MSME.

Keywords: Financial Literacy

ꞏ Financial Management Hehavior ꞏ Micro Small

and Medium Enterprise (MSME)

1 Introduction

Financial Service Authority (Otoritas Jasa Keuangan) puts an improvement program

for financial literacy and access enhancement for the poeple towards the formal

financial industry as one of the priority programs[1]. Financial literacy is a combination

of awareness, knowledge, skill, attitude, and behavior of an individual in making a

healthy financial decision which later will reach a financial welfare[2, 3]. Financial

literacy is not limited to the definition of knowledge, skill and confidence towards the

institution and financial product and system only, but also the attitude and behavior that

can give an effect in improving the financial literacy which later can encourage the

people welfare. There are 3 (three) dimensions of financial literacy, namely: 1)

Calculation skill; 2) Understanding about basic finance; and 3) Attitude towards the

financial decision[4]. The knowledge in financial lieracy context includes knowledge,

education, and information regarding the finance and its source, banking, deposit,

credit, insurance, and tax[5]. The financial attitude and behavior are reflected in one’s

ability in deciding the financial target, arranging the financial planning, managing the

finance and taking a good-quality financial decision in using the financial service and

product.

Maula, K. and Sugiharti, H.

The Effect of Financial Literacy towards Financial Management Behavior of MSME: A Study on MSME Administrators in Karawang Regency.

DOI: 10.5220/0010599100002900

In Proceedings of the 20th Malaysia Indonesia International Conference on Economics, Management and Accounting (MIICEMA 2019), pages 859-865

ISBN: 978-989-758-582-1; ISSN: 2655-9064

859

Micro, Small, and Medium Enterprise (MSME) plays a major role in the economy

of people in Indonesia, where the government looks into the importance of MSME

exixtence. To keep the existence of MSME, even increasing, an adequate knowledge

and skill are needed. With good understanding of knowledge and financial literacy, they

will be able to manage the finance as effective as possible. MSME needs to know how

to manage the finance as well as technique in investment[6, 7].

Today’s economy condition demands the MSME players to make a faster yet more

complex financial decision. The lack of financial literacy, can cause the low access to

the financial institution which later will give an error in wealth and revenue

allocation[8]. A low Financial literacy will cause to the limited access towards the

capital sources which solely relies on banking. While the products from others funding

instituions are less known.

Other problems caused by the low financial literacy for the MSME will impact the

business development, even the economy in national scale. National economy will be

tough from world financial crisis if the people in it, understand about the financial

system[9].

2 Literature Review and Hypoteses Development

2.1 Financial Literacy

Financial literacy is a measurement towards one’s understanding about the financial

concept, and possesses the ability and confidence to arrange the private financial

through the precise short-term decision making, long-term financial planning, and puts

attention to the events and conditions of the economy. Financial literacy includes the

awareness and knowledge towards the financial instruments in business world and its

application in business and life[10]. Financial literacy of an individual later develops

into a financial skill, where the skill itself is defined as an ability in applying the

financial knowledge in daily activities[11].

2.2 Financial Management

Financial management behavior is related to the financial responsibility of someone

regarding the way to manage their finance. Money management is a process in using

the money assets[12]. With a good money management, people will not get trapped

with the unlimited needless behaviors. The emergence of financial management

behavior is an impact of one’s activity in fulfilling the life needs in line with the income

level[13]. One’s financial management behavior can be seen from 4 (four) things

below:

1) Consumption, is an expense by the household for various goods and service.

2) Cash flow, is the main indicator from the financial health, means that the

measurement of someone’s ability to pay any kind of cost he has.

3) Savings, is part of income which is not consumed for certain period.

4) Debt management, is one’s ability in employing the debt to not to make or employ

the debt to improve the welfare[14].

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2.3 Hypotheses

The hypotheses in this study are as follows:

H : Financial literacy affects on financial management behavior of MSME

: The basic knowledge of financial affects on financial management behavior

of MSME

: Savin

s and loans affec

s on financial mana

ement behavio

of MSME

: Insurance affec

s on financial mana

ement behavio

of MSME

: Investment affec

s on financial mana

ement behavio

of MSME

3 Research Method

To reach the targeted aims, the method used in this study is descriptive and verificative

in form of survey assessment. The data collection technique used in this study is

questionnaire, which is the closed and structured questionnaire, which means that the

questions or statements restrict the respondents from giving answers and opinions based

on their own words due to the fact that the answers are provided already.

The respondents are 100 MSME Administrators in Karawang Regency.

4 Result and Discussion

4.1 Result

Descriptive Statistics. The result of the descriptive statistics test is as follows:

Table 1. The Result of Descriptive Statistics Test.

Variable N Mean Std. Dev Min. Max.

Basic Knowled

e of Financial 100 12.88 1.976 8 16

Savings and Loans 100 8.79 1.866 4 12

Insurance

100 8.39 1.808 5 12

Investment

100 12.58 2.543 7 16

Financial Mana

ement 100 29.37 5.908 18 38

Source: processed data (2019)

Table 1 shows that N in this study are 100 MSME Administrators in Karawang

Regency. The financial literacy is measured using 4 (four) indicators, namely basic

knowledge of financial, savings and loans, insurance, and investment.

Multiple Linear Regression. The result of multiple linear regression testing following

the classic assumption testing whose results are in accordance with the regression

calculation rule in this study is as follows:

The Effect of Financial Literacy towards Financial Management Behavior of MSME: A Study on MSME Administrators in Karawang

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Table 2. The Result of Multiple Linear Regression Test.

Variabel

Unstandardized Coefficients

Standardized

Coefficients

B Std. Error Beta

(

Constant

)

3.299 3.213

Basic Knowledge of Financial .472 .253 .158

Savin

s and Loans .351 .270 .111

Insurance .296 .281 .091

Investment 1.147 .229 .494

Source: processed data (2019)

Table 2 shows that, it can be described that constant (a) value of 3.299 means that, if

the financial literacy is 0, the financial management behavior is 3.299. The regression

coefficient of basic knowledge of finance is 0.472, which means that, if the other

indicators’ value is constant and the value of basic knowledge of finance increases by

1, the financial management behavior will increase by 0.472. The regression coefficient

of savings and loans is 0.351 which means that, if other indicators’ value is constant

and the value of savings and loans increases by 1, the financial management behavior

will increase by 0.351. Then, the regression coefficient of insurance is 0.296 which

means that, if other indicators’ value is constant and the value of insurance increases

by 1, the financial management behavior will increase by 0.296. And the regression

coefficient of investment is 1.147, which means that, if other indicators’ value is

constant and the value of investment increases by 1, the financial management behavior

will increase by 1.147.

From the results, it is shown that each variable has positive direction. The basic

knowledge of finance, savings and loans, insurance and investment have positive

directions towards financial management behavior of MSME.

4.2 Hypotheses Testing

t-test. To test the extent of the impact of an independent variable, individually in

describing the variation of dependent variable, t-test is used. The result of t-test is

shown below:

Table 3. The Result of t-test.

Variable t Sig.

(

Constant

)

1.027 .307

Basic Knowledge of Financial 1.863 .066

Savin

s and Loans 1.299 .197

Insurance 1.054 .295

Investment 5.017 .000

Source: processed data (2019)

Table 3 shows that, it is obtained the result where the basic knowledge of finance

variable shows a Sig. value of 0.307 > 0.050. Based on that, it can be concluded that

the basic knowledge of finance doesn‘t affect significantly on financial management

behavior of MSME. The variable of savings and loans shows a Sig. value of 0.066 <

0.100. Based on the result, it can be concluded that the savings and loans significantly

MIICEMA 2019 - Malaysia Indonesia International Conference on Economics Management and Accounting

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affects on financial management behavior of MSME. The variable of insurance shows

a Sig. value of 0.197 > 0.050. Based on the result, it can be concluded that the insurance

doesn‘t affect significantly on financial management behavior of MSME. And the

variable of investment shows a Sig. value of 0.000 < 0.050. Based on the result, it can

be conluded that investment significantly affects on financial management behavior of

MSME.

F-test. Basically, F-test shows if each independent variable inputted to the model has

an impact towards the dependent variable. The result of this testing is:

Table 4. The Result of F-test.

Variable F Sig.

Financial Literacy towards the Financial Management Behavio

22.968 .000

Source: Processed data (2019)

Table 4 shows that, it is obtained that the financial literacy shows a Sig. value of 0.000

< 0.050. Based on the result, it can be concluded that the financial literacy significantly

affects on financial management behavior of MSME.

4.3 Discussion

Financial literacy is a combinantion of awareness, knowledge, skill, attitude and

behavior of someone in making a healthy financial decision which in the end, reaches

an individual financial welfare

2,3

. The basic principals of financial literacy are, 1)

Planned and measured. The conducted activity has a concept in line with the targets,

authority policy and the policy of financial service players and indicator to obtain

information for financial literacy improvement; 2) Achievement-oriented. The

conducted activity is able to reach the target of financial literacy improvement by

optimizing the current resources; 3) Sustainable. The activity conducted simultaneously

is aimed to reach the planned target as well as have a long-term aspect.; and 4)

Collaboration. The activity involves all of the stakeholders in the implementation of the

activity.

In this study, financial literacy is measured using 4 (four) indicators, namely basic

knowledge of finance, savings and loans, insurance and investment. The result shows

that the basic knowledge of finance and investment significantly affect on financial

management behavior of MSME. Improvement of financial literacy will improve the

understanding towards the private financial, especially the investment area[15].

And then the result in this study shows that the financial literacy significantly

affects on financial management behavior of MSME. This is in line with the result of

prior studies showing that the financial literacy has a significant effect towards financial

management behavior[16,17,18,19]. It means that the better the knowledge and skill of

individual in implementing the financial aspects, the wiser the financial behavior and

more effective the financial management.

The Effect of Financial Literacy towards Financial Management Behavior of MSME: A Study on MSME Administrators in Karawang

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5 Conclusion and Suggestion

5.1 Conclusion

Based on the result, it can be concluded that the financial literacy significantly affects

on financial management behavior of MSME in Karawang Regency. The indicators

used to measure financial literacy are basic knowledge of finance, savings and loans,

insurance and investment. The indicators of basic knowledge of finance and investment

have significant effects on towards the financial management behavior of MSME, while

savings & loans and insurance doesn’t effects on financial management behavior of

MSME.

5.2 Suggestions

To follow up the result of the study, workshop or seminar can be arranged for the

MSME regarding the financial literacy which will give effect to financial management

behavior of MSME, especially in Karawang Regency. Furthermore, for future studied

can conduct a study with a wider objects, by involving respondents more than what has

been done in this study. In addition, future studies can use a more variables, such as

entrepreneurial interests, knowledge of business interests and other variables.

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