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.
Main analysis: Business and financial practice outcomes: Separate business and personal cash; Keep accounting records; Separate business and personal accounting; Set aside cash for business expenses; Calculate revenues formally; Business practices index; Any savings; Savings amount, $RD Reporting quality outcomes: Any reporting errors; Raw profit calc. diff. (RD$), weekly; Absolute value profit calc. diff. (RD$), weekly Business performance outcomes: Total number of employees; Revenue index; Sales, average week; Sales, bad week (RD$) Institutional outcomes: Loan size (RD$); Any savings; Savings last month (RD$); Individual loan; Dropout Heterogeneity analysis: Business practices index; Any reporting errors; Revenue index; Sales, bad week (RD$)
The rule of thumb training improved firms financial practices, reporting and revenues, with a particularly strong effect on entrepreneurs with lower initial financial skills.