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
Drexler, Alejandro, Greg Fischer, and Antoinette Schoar. 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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