Integrating Financial Decision-Making into Islamic Financial Literacy as A Mediating Factor: Implications for Enhancing Financial Well-Being

Abstract

Financial decision-making is a crucial process that directly influences the financial well-being of individuals, households, businesses, and governments. Despite its importance, a substantial number of individuals lack the essential financial knowledge and skills needed for effective financial management. This study aims to investigate the mediating role of financial decision-making in the relationship between Islamic financial literacy and financial well-being among Malaysian households. This study is original in its pioneering exploration of the unique role that financial decision-making plays within the framework of Islamic financial literacy, and its significant contribution to enhancing the financial well-being of Malaysian households. The study employs quantitative methods, with data collected from 402 respondents in the Klang Valley region using a cross-sectional design and questionnaire methodology. The collected data was analyzed using Structural Equation Modeling (SEM) techniques, specifically PLS-SEM 4.0 software and SPSS 26. The findings confirmed that financial decision-making effectively mediates the relationship between Islamic financial literacy and financial well-being. By illustrating how Islamic financial literacy shapes decision-making behaviors, the study provides valuable insights into how informed financial choices can significantly enhance the financial stability and well-being of Malaysian households. The findings suggest that policymakers and stakeholders in the financial industry should design targeted financial literacy and awareness programs that encourage greater engagement with Islamic financial products and services.