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Keeping It Simple: Financial Literacy and Rules of Thumb

Listed author(s):
  • Alejandro Drexler
  • Greg Fischer
  • Antoinette Schoar

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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/app.6.2.1
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File URL: http://www.aeaweb.org/aej/app/app/0602/2013-0101_app.pdf
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Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 6 (2014)
Issue (Month): 2 (April)
Pages: 1-31

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Handle: RePEc:aea:aejapp:v:6:y:2014:i:2:p:1-31
Note: DOI: 10.1257/app.6.2.1
Contact details of provider: Web page: https://www.aeaweb.org/aej-applied
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  1. Lars Ivar Oppedal Berge & Kjetil Bjorvatn & Kartika Sari Juniwaty & Bertil Tungodden, 2012. "Business Training in Tanzania: From Research-driven Experiment to Local Implementation-super- †," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 21(5), pages -827, November.
  2. Bernheim, B. Douglas & Garrett, Daniel M., 2003. "The effects of financial education in the workplace: evidence from a survey of households," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1487-1519, August.
  3. Shawn Cole & Anna Paulson & Gauri Kartini Shastry, 2014. "Smart Money? The Effect of Education on Financial Outcomes," Review of Financial Studies, Society for Financial Studies, vol. 27(7), pages 2022-2051.
  4. Miriam Bruhn & Bilal Zia, 2013. "Stimulating managerial capital in emerging markets: the impact of business training for young entrepreneurs," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 5(2), pages 232-266, June.
  5. Eric P. Bettinger & Bridget Terry Long & Philip Oreopoulos & Lisa Sanbonmatsu, 2012. "The Role of Application Assistance and Information in College Decisions: Results from the H&R Block Fafsa Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1205-1242.
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