Keeping It Simple: Financial Literacy and Rules of Thumb
- (pp. 1-31)
Abstract
Micro-entrepreneurs often lack the financial literacy required to make important financial decisions. We conducted a randomized evaluation with a bank in the Dominican Republic to compare the impact of two distinct programs: standard accounting training versus a simplified, rule-of-thumb training that taught basic financial heuristics. The rule-of-thumb training significantly improved firms' financial practices, objective reporting quality, and revenues. For micro-entrepreneurs with lower skills or poor initial financial practices, the impact of the rule-of-thumb training was significantly larger than that of the standard accounting training, suggesting that simplifying training programs might improve their effectiveness for less sophisticated individuals.Citation
2014. "Keeping It Simple: Financial Literacy and Rules of Thumb." American Economic Journal: Applied Economics, 6(2): 1-31. DOI: 10.1257/app.6.2.1Additional Materials
JEL Classification
- D04 Microeconomic Policy: Formulation; Implementation; Evaluation
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- L24 Contracting Out; Joint Ventures; Technology Licensing
- L25 Firm Performance: Size, Diversification, and Scope
- L26 Entrepreneurship
- M41 Accounting
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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