Antoinette Schoar is the Stewart C. Myers-Horn Family Professor of Finance and Entrepreneurship at the MIT Sloan School of Management, and a cofounder and Board member at ideas42.
In 2006, MIT economist Antoinette Schoar set her sights on a new project within the behavioral economics lab she had cofounded with Sendhil Mullainathan (then Harvard, now University of Chicago) and Eldar Shafir (Princeton).
Schoar led several projects during the lab’s early years, including one teaching microentrepreneurs financial management skills. They sought to improve conventional classroom-based methods to help business owners—especially women—boost their business.
What began as a pilot project in the Dominican Republic nearly 20 years ago proved so impactful that the model was adapted to three other countries in distinct corners of the world. Along the way, Schoar, Mullainathan, and Shafir formalized lab operations by founding ideas42.
The program—now called the Financial Heuristics Training—is one of ideas42’s most successful field-based interventions, one that has been replicated and scaled across geographies and populations. It demonstrates that “rule of thumb”–based training can improve business practices and outcomes. Ultimately, this work exemplifies how applied behavioral science can materially improve the lives of small business owners and their communities around the world.
What follows is an interview with Schoar reflecting on how the training program has evolved, and how this model has influenced ideas42’s approach to real-world problems.
1. What problem were you solving through the first financial heuristics project?
Small and medium-sized enterprises make up more than 90% of businesses worldwide, corresponding to over half of the world’s employment. They contribute substantially to economic growth, especially in developing and emerging economies, and bear the potential to improve the livelihoods of hundreds of millions of families. Yet despite their contributions, many small business owners lack essential skills for managing their finances and growing their businesses.
To fill these skill gaps, governments have invested billions of dollars in classroom-style training on business management and financial education. Yet these trainings have had almost no impact on actually changing financial behaviors or improving business outcomes. (In fact, a meta-analysis of over 200 studies showed that most financial education training programs do not lead to changes in financial behaviors, and only 0.1% of the changes observed in financial practices were attributed to such training.)
We set out to change this.
2. What was different about the solutions you and your team put forth?
Behavioral science had shed some light on why traditional financial education training programs may have been falling short: humans have limited bandwidth to digest, retain, and act on new information—and this is especially true for busy women microentrepreneurs who are time poor and mentally stretched, often juggling the bulk of household responsibilities on top of their business. Most programs involved unnecessarily complex materials and required microentrepreneurs to attend classes in-person, typically on top of a full day of work and childcare duties. Few incorporated scenarios relevant to business owners’ day-to-day realities, let alone their unique cultural or regional context. Those programs were seeing low attendance, poor engagement, and little impact on the business.
The traditional programs struck us as too cumbersome; they also failed to consider the psychological and behavioral barriers that prevented microentrepreneurs from fully acting on what they were learning.
With these insights in mind, we wanted to build a training program that would meet business owners where they are—providing information framed through practical “rule of thumb” modalities.
3. What was your hypothesis behind the rule of thumb approach?
Behavioral scientists had already identified why rules of thumb can be more effective: when complex information is simplified into heuristics (mental shortcuts), it’s easier for people to absorb and recall it later, making it more likely they will follow through on their intended action. How information is presented impacts our ability to process it. Overwhelming people with too much information is simply ineffective—that’s why some of the most effective policy changes (or marketing strategies, or weight loss programs) are the simplest and easiest to remember.
Thus, rather than trying to cover dense business and accounting practices, we distilled content into simple insights, making the lessons easier to learn, remember, and apply. After combining that with nuanced cultural considerations, we were confident we could better engage microentrepreneurs and ultimately improve their bottom lines. We called our approach the Financial Heuristics Training.
4. What’s one example?
The Financial Heuristics Training provides simple recommendations like keeping business and personal funds in separate accounts, which gives the business owner a clearer picture of their bottom line. (For unbanked business owners, the curriculum encourages keeping funds physically separate.) This practice also lends a “commitment device”—another behavioral science principle—to discourage spending the business’ funds for personal needs and vice versa.
5. What were the results of the first project, and how did they inform the evolution of the program?
We first tested the program in the Dominican Republic and were encouraged by the positive impact on business practices and outcomes. Participants were 10 percentage points more likely to adopt helpful business practices (such as the rules of thumb about keeping account records and separating business from household accounts). Business owners who took the training also saw improved weekly revenues and a nearly 19% increase in sales during reported bad weeks.
We had evidence that the training worked, and I knew that the challenges we addressed were shared by entrepreneurs across the developing world. So we began to think about how we could scale the program and adapt it to other contexts.
6. What was the subsequent implementation of the training?
What began as a pilot program for 1,193 microentrepreneurs in the Dominican Republic has evolved into a program we have replicated and tested in three other regions: South Asia (India), Southeast Asia (the Philippines), and sub-Saharan Africa (Ethiopia), with the latter currently underway.
In India, our second region, we focused on the successful cash separation rules of thumb from the Dominican Republic and added additional lessons. Based on the feedback and results, we tested the refined prototype across various regions and several local languages in India. We then replicated it in the Philippines, where we saw positive effects on business practices and where the training was later scaled.
The training in Ethiopia resulted in improved business practices and increased the likelihood of saving by participants, in addition to even higher engagement rates than those in India and the Philippines. Thanks to these successes, the World Bank plans to scale this initiative to reach more people across the country.
In all, we’ve trained over 13,000 microentrepreneurs through the program—and ideas42 has ambitious plans to carry forward this work.
7. Along the way, you incorporated a novel storytelling element into the training. Would you share more?
Given the challenges we found in the Dominican Republic of having microentrepreneurs attend classes in-person (and of scaling a classroom-based training), we developed a brilliant workaround: delivering prerecorded audio messages to business owners over mobile phones (which are pervasive even in communities with limited financial resources). We’ve used this approach ever since.
This approach allowed us to reach more business owners (since they no longer needed to come to a physical location) and to standardize the delivery and quality of the content. It meant all entrepreneurs, regardless of literacy, could access the training. This is important in the regions where we operate, especially from a perspective of gender equity (on average, women have lower literacy levels than men). Conveying the information by phone was amenable to short snippets of content.
We integrated a callback feature that allowed participants to access the previous lessons, in case they missed one or wanted to relisten. We eventually limited this to two lessons, since our findings indicated (and conventional wisdom from behavioral science supports) that giving participants access to all previous lessons was counterproductive. Again, we saw that too much information can be overwhelming and was underutilized.
In India and the Philippines, we brought on voice actors to narrate the lessons. Through storytelling, narrators shared experiences from the perspective of business owners in similar contexts and wove the curriculum into their vignettes. The tone was conversational, and the actors delivered lessons in the local language with familiar names and expressions. While it may seem like common sense, this personalized approach was informed by research that humans are more likely to retain information when it’s presented in a manner that feels relevant to us, such as through personal stories.
8. What were some of the challenges to ensuring rigor through each step of the process?
We needed the full collaboration of our banking partners to set up treatment and control groups, and to share with us the anonymized loan performance data afterward. We built relationships of mutual respect and trust. They fully embraced the goal of the experiment and what could be learned from it, which was tremendously helpful. And of course, the infrastructure at ideas42 solved many logistical challenges.
9. How did the Financial Heuristics Training program serve as a model for how ideas42 would approach its projects?
The project had a neat evolution: we published a highly cited paper in the American Economic Journal: Microeconomics, which highlighted the original (and academically more compelling) idea that heuristics-based trainings are more impactful and easier to implement than traditional financial accounting trainings, even if people understand and are receptive to the latter. (As we’ve seen, many people just don’t have the bandwidth to implement what they’ve learned.) In the subsequent replication projects, we focused more on making the material scalable and technologically feasible and cheap. This is of less interest to an academic audience, but is important for impact.
10. What have you learned through these experiences?
Scaling is hard! And even if you’ve tested a program that has shown to be successful in other places, many financial institutions are risk averse and need convincing to take on new ideas.
At the same time, I have been impressed all along with the creativity and hard work of many people at our partner institutions—and of course the team at ideas42.
