Behavior-First finance: Reframing digital literacy and self-efficacy as drivers of MSME well-being

This study investigates the mediating role of financial behavior in the relationship between digital financial literacy, financial self-efficacy, and financial well-being among Micro, Small, and Medium Enterprises (MSMEs) in North Maluku, Indonesia. MSMEs account for over 61% of Indonesia's GDP and employ 97% of the workforce, yet they face persistent challenges, including limited digital financial literacy, inadequate financial self-efficacy, and suboptimal financial behaviors. Employing a quantitative explanatory survey design with Partial Least Squares-Structural Equation Modeling (PLS-SEM), data were analyzed from 250 MSME actors operating for at least two years and utilizing digital financial services. Results demonstrate that digital financial literacy (β = 0.22, p < 0.05) and financial self-efficacy (β = 0.30, p < 0.01) significantly influence financial behavior, which subsequently affects financial well-being (β = 0.32, p < 0.001). The structural model accounts for 41% of the variance in financial behavior and 56% of the variance in financial well-being, with significant mediation effects confirmed. This behavior-first perspective advances behavioral finance literature by establishing that financial well-being emerges not from structural endowments or knowledge acquisition alone, but through consistent translation of cognitive and psychological resources into disciplined financial practices. The integration of behavioral life-cycle hypothesis and self-determination theory provides a comprehensive framework explaining how knowledge and confidence must manifest through repeated behaviors—including systematic budgeting, regular savings, and prudent debt management—to generate sustainable outcomes. These findings suggest that MSME development initiatives should prioritize behavioral interventions and psychological empowerment alongside traditional capital access programs, particularly in peripheral regions confronting dual economic and geographical vulnerabilities, where behavioral agency becomes critical for financial resilience.