The Role of Financial Literacy in Improving Digital Financial Management Practices among Small and Medium Enterprises

Abstract

Small and Medium Enterprises (SMEs) contribute significantly to economic growth and local development; however, many SMEs still face challenges in managing financial activities due to limited financial literacy and digital financial adoption. This study examines the role of financial literacy in improving digital financial management practices among SMEs. Using a quantitative survey approach, data were collected from SME owners and analyzed through descriptive and regression analysis. The results show that financial literacy has a positive and significant influence on digital financial management practices. SMEs with better financial literacy demonstrate stronger abilities in utilizing digital financial applications, maintaining financial records, managing cash flows, and making informed business decisions. The findings highlight that financial literacy supports digital transformation and improves financial control and business sustainability. This study provides practical implications for policymakers, financial institutions, and SME development programs in designing effective financial education and digitalization strategies to strengthen SME competitiveness.