Whether it is education generally or domain specific skills, it seems obvious that imparting knowledge and skills should be an effective approach for improving outcomes. What’s not so obvious is how to deliver useful knowledge and skills. A few new papers shed some light on two areas of specific interest to us: financial literacy and business training for microentrepreneurs.
A new paper based on a two-year, in-school, financial literacy program for high school students finds increased use of savings over borrowing, increased likelihood of financial planning and spillover of financial knowledge to the students’ parents. There are two important things to note in these findings. First, this is a very intensive program, with training of teachers, significant investment in curriculum materials, and many hours of instruction. Second, the results are self-reported. So the impact noted is not whether, for instance, the students actually saved up for a large purchase rather than borrowing at expensive rates, but whether they report doing so (for fairly obvious reasons of time and expense, it is rarely possible to measure actual behavior in large samples). A cynical interpretation of these results would be that two years of financial literacy training is effective at teaching people how to respond to financial behavior survey questions.
In the business training area, a recent paper looks at training for rural shopkeepers in Mexico. It finds positive effects via two different channels. First, those who are already doing quite well relative to their peers benefit most from the training (increasing profits by changing the mix of items they sell, for instance). Those doing less well before the training are more likely to give up and close their businesses. Make no mistake: the latter is a positive result. Figuring out whether you are cut out for being an entrepreneur and whether it is the best use of your time and limited means is a big benefit.
How much should each of these papers influence your thinking about the effectiveness of training? It is important to put these results in context. The literature on financial literacy is not encouraging. For some background see Jonathan Morduch’s and Barbara Kiviat’s review. A recent formal meta-analysis, mostly of programs in the US, finds that financial literacy programs explain less than 0.1% of the total differences in participants’ vs. non-participants’ behavior. The meta-analysis authors conclude that most of the variation is likely explained by personal factors like general math skills and ability to delay gratification.
In terms of business training, McKenzie and Woodruff have reviewed the literature focused on microentrepreneurs, as have Karlan, Knight and Udry. Both reviews find mostly small and temporary effects. In general, both line up with a view that training benefits a few exceptional entrepreneurs, but does little for the majority.
There are some emerging bright spots for training in both domains, however. Jean Lee blogged recently on some other financial literacy interventions that have had positive effects by focusing on highly targeted, short-term training for people with specific and immediate needs. Indeed, that approach also finds support in the generally discouraging financial literacy meta-analysis referenced above. The best avenue for impact is likely to be innovative ways to find people who need specific knowledge, e.g. how to send remittances most cost-effectively—and delivering that knowledge just-in-time.
Some of Chris Blattman’s work also suggests a path forward for business training programs. At first glance, his paper comparing the cost effectiveness of training to cash grants are discouraging. The results indicate that participants would be better off if the money spent on training was just handed to them as cash instead. But on the positive side, Blattman does find that the training improves business outcomes—just not enough to justify the cost. That suggests that there is a fruitful avenue to pursue in driving down the cost of business training—perhaps by following the targeting and just-in-time path most promising in financial literacy as well.