The global Islamic finance market's substantial growth highlights the influence of religious principles on Muslims' financial decisions. While existing research acknowledges religiosity's impact on financial behavior and well-being, a gap exists in understanding the interplay between religiosity, Islamic financial literacy, and their combined effects. This study aims to bridge this gap by examining how religiosity and Islamic financial literacy influence Indonesian Muslims' financial behavior and well-being, considering socio-demographic factors. The study integrates Rational Choice Theory, the Rational Choice Theory of Religion, and Behavioral Finance to provide a comprehensive framework for understanding these relationships. Rational Choice Theory explains how Muslims optimize personal and spiritual well-being within Islamic law. The Rational Choice Theory of Religion explains how religious practices maximize spiritual and social rewards. Behavioral Finance accounts for deviations from rational decision-making due to psychological biases. By integrating these theories, the study offers insights into the mechanisms driving financial decisions within Muslim communities, informing financial education, policy-making, and the development of religiously tailored financial products.

The study reviews Rational Choice Theory, emphasizing utility maximization and consistent preferences in financial decision-making. It explores the Rational Choice Theory of Religion, highlighting how individuals rationally assess the costs and benefits of religious practices. Behavioral Finance is also examined, acknowledging the influence of psychological biases and emotions on financial decisions. The literature review further discusses the concept of the Centrality of Religiosity, exploring its five dimensions (intellectual, ideological, public practice, private practice, and religious experience) and its theoretical basis in sociological and psychological perspectives. The review also examines Islamic financial literacy, its significance in understanding Islamic financial products and adherence to Sharia principles, and the implications for financial well-being. This provides a theoretical foundation for understanding how Islamic financial principles influence financial management within a religiously observant population.

Data was collected using an online survey between May and June 2021, from 1141 Indonesian Muslims aged 18–65. A non-probability sampling method was employed. The Centrality of Religiosity Scale (CRS) by Huber and Huber (2012) measured religiosity's centrality, encompassing intellectual, ideological, public practice, private practice, and religious experience dimensions. Basic Islamic financial literacy was measured using an instrument developed by Antara et al. (2016), assessing knowledge of Gharar, Riba, and Maysir. Financial management behavior was measured using an adapted instrument from Strömbäck et al. (2017), focusing on practices such as budgeting, expense tracking, and savings. Financial well-being was measured using Strömbäck et al.'s (2017) instrument, assessing financial anxiety and security. The data analysis employed structural equation modeling (SEM) using AMOS, and additional analyses using SPSS compared means based on socio-demographic variables. Several items in the original instruments were removed because they measured practices or products prohibited in Islam (e.g., credit card usage). Reliability and validity analyses were performed to ensure the quality of the measures.

The SEM results show that both the centrality of religion and Islamic financial literacy significantly and positively influence financial management behavior and financial well-being. However, Islamic financial literacy exhibits a more substantial effect on both dependent variables than religiosity. Specifically, the centrality of religion positively and significantly impacts financial management behavior (β = 0.074, p < 0.036) and financial well-being (β = 0.146, p < 0.003). Islamic financial literacy significantly and positively affects financial management behavior (β = 0.211, p < 0.000) and financial well-being (β = 0.286, p < 0.000). The model fit indices (CMIN/df = 0.4559; TLI/NNFI = 0.844; CFI = 0.865; RMSEA = 0.056) suggest a good model fit. Further analyses using t-tests and ANOVA revealed significant differences based on gender and cohort. Males demonstrated higher Islamic financial literacy, lower financial anxiety, and greater financial security than females. Across cohorts, the older generation (Generation X and Baby Boomers) displayed higher religiosity, better financial management behavior, lower financial anxiety, and greater financial security than younger generations (Generation Z and Millennials), despite younger generations exhibiting higher Islamic financial literacy. Higher education levels were associated with better financial management behavior, lower financial anxiety, and greater financial security. Higher income levels correlated with higher Islamic financial literacy, better financial management behavior, lower financial anxiety, and greater financial security.

The findings highlight the crucial role of Islamic financial literacy in promoting sound financial management and well-being among Indonesian Muslims. This supports the importance of financial literacy education tailored to the cultural and religious context. The positive influence of religiosity, particularly private religious practices, suggests that integrating faith-based principles into financial decision-making can enhance well-being by reducing anxiety and improving security. The generational differences in financial attitudes and behaviors underscore the need for age-specific financial literacy programs. Higher education and income levels are strongly associated with better financial outcomes, highlighting the significance of socioeconomic factors.

This study demonstrates the significant positive impact of religiosity and Islamic financial literacy on financial management and well-being among Indonesian Muslims. Islamic financial literacy shows a stronger influence than religiosity. Socioeconomic factors such as gender, age, education, and income also play a role. Future research should use longitudinal designs, broader samples, and more in-depth measures to strengthen the findings.

The cross-sectional design limits causal inferences. The sample might not fully represent the diversity of Indonesian Muslim communities. Self-reported measures may introduce bias. The analysis of socioeconomic factors may not include all relevant variables. The study only focuses on basic Islamic financial literacy.