Financial Resilience of Informal Workers in Indonesia

Abstract

Informal workers are vulnerable to various economic shocks, which makes them less financially resilient. Given the lower pay and unpredictable income, effective financial planning is considered to play a more significant role than merely financial literacy in strengthening financial resilience. Since the informal workers contribute 60 percent of labour absorption in Indonesia, it is urgent to understand the factors determining informal workers' financial resilience. This study aims to analyse to what extent financial planning and literacy can improve the economic resilience of informal workers. The primary data is 178 informal worker families collected by a questionnaire in 2024. The model is a partial least-squared-structural equation model (PLS-SEM). The independent variables are financial literacy, planning, financial satisfaction, and demographic variables of age, education, and income. The dependent variable is financial resilience with financial satisfaction as a mediating variable. The study results confirm that informal household financial resilience increases more due to effective financial planning than financial literacy. Financial literacy does not always correlate with informal workers' financial resilience improvements without sufficient income. In this study, income is proven significant in boosting financial resilience. This study implies that the financial resilience of informal households, which generally have low and uncertain incomes, can be improved through proper financial planning accompanied by strengthening their economic capacity and social protection, especially for the poorest.