The role of financial well-being and ethical finance adoption: evidence from Indonesia’s Islamic banking sector

Purpose This study aims to examine financial behavior, well-being and ethical finance adoption, specifically within the context of Islamic banks in Indonesia. Design/methodology/approach Data collection through questionnaires was carried out online with 662 respondents. The data were processed using the partial least square structural equation modeling (PLS-SEM). Findings This study shows that there is a significant positive effect of financial well-being on the intention to adopt ethical finance. In addition, this study underscores the significance of subjective financial knowledge and locus of control, revealing their substantive and positive impact on financial well-being through the conduit of financial behavior. Moreover, this study also found the role played by both extrinsic and intrinsic religiosity, alongside financial literacy, in influencing the underlying psychological dimensions of financial well-being. Research limitations/implications The results obtained confine to variables examined and the scope of investigation. Further studies should address these issues accordingly to extend the findings. Practical implications The result indicates the Islamic banks need to consider the price competitiveness while maintain the quality to reach more potential customers. Islamic banks as ethical financial institutions need to skillfully identify and cater to markets that share the ethical values embodied in their services. Social implications This study underscores the social implications of improving financial well-being, literacy and religiosity in driving the adoption of ethical finance products like Islamic banking. Enhancing financial literacy and fostering positive financial behaviors empower individuals, particularly in emerging economies like Indonesia, to access ethical financial solutions, supporting financial inclusion and poverty reduction. By aligning financial products with ethical and cultural values, Islamic banks can address socioeconomic inequality, promote justice and fairness and contribute to sustainable economic growth, fostering a more equitable and inclusive financial system. Originality/value This study takes a more comprehensive approach to the financial well-being psychological model by incorporating additional factors such as religiosity and Islamic financial literacy into the assessment of financial well-being and extends its impact on ethical finance product adoption. This study also enriches the literature regarding the factors affecting ethical finance adoption such as Islamic banks.