DP7994 Keeping it Simple: Financial Literacy and Rules of Thumb

Author(s): Alejandro Drexler, Greg Fischer, Antoinette S Schoar
Publication Date: September 2010
Keyword(s): adult education, business training, entrepreneurship, financial literacy
JEL(s): c93, d14, d21, i21, j24, o12
Programme Areas: Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7994

Individuals and business owners engage in an increasingly complex array of financial decisions that are critical for their success and well-being. Yet a growing literature documents that in both developed and developing countries, a large fraction of the population is unprepared to make these decisions. Evidence on potential remedies is limited and mixed. Two randomized trials test the impact of financial training on firm-level and individual outcomes for microentrepreneurs in the Dominican Republic. We find no significant effect from a standard, fundamentals-based accounting training. However, a simplified, rule-of-thumb training produced significant and economically meaningful improvements in business practices and outcomes.