Keeping It Simple: Financial Literacy and Rules of Thumb

Micro-entrepreneurs often lack the financial literacy required to make important financial decisions. In this study, the researchers 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. 


Alejandro Drexler

Federal Reserve Bank of Chicago

Antoinette Schoar

MIT Sloan School of Management