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Keeping it Simple: Financial Literacy and Rules of Thumb

39 Pages Posted: 14 Nov 2010  

Alejandro Drexler

Federal Reserve Bank of Chicago

Greg Fischer

London School of Economics & Political Science (LSE) - Department of Economics

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: September 2010

Abstract

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.

Keywords: adult education, business training, entrepreneurship, financial literacy

JEL Classification: C93, D14, D21, I21, J24, O12

Suggested Citation

Drexler, Alejandro and Fischer, Greg and Schoar, Antoinette, Keeping it Simple: Financial Literacy and Rules of Thumb (September 2010). CEPR Discussion Paper No. DP7994. Available at SSRN: https://ssrn.com/abstract=1707884

Alejandro Drexler (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 S La salle St, Chicago
Austin, IL 60604
United States

Greg Fischer

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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