Effective financial education for entrepreneurs

A TFI research project by Catalina Estrada-Mejía, María Piedad Valero, and Daniela Castaño
Posted on October 31, 2019

“Effective financial education for entrepreneurs” is one of the short-term research projects supported by the Think Forward Initiative.

It is an erroneous belief that knowing how to run a business teaches people how to manage personal finances or vice versa. Entrepreneurs even tend to mix up business accounts with personal ones, and have difficulty separating business from personal interests. In this study, Catalina Estrada Mejía, María Piedad Valero, and Daniela Castaño tested a new financial education method for entrepreneurs called Aequam+Do. As this program puts strong emphasis on psychological factors rather than financial knowledge, it distinguishes itself from other financial literacy programs.

Interested to find out what the method entails and how it can contribute to improving entrepreneurs’ financial skills? Then download the full report below!


Money is managed best when the emotional mind is in sync with the rational mind. In this study, we mainly wanted to test whether entrepreneurs who participated in Aequam+Do, an innovative methodology for teaching financial literacy, perceived any changes in the way they manage their finances. Does the Aequam+Do intervention programme indeed increase its participants’ awareness of their financial decisions? We also wished to find out which strategies might reduce their income insecurity or volatility, and how they might use debt effectively.

The Aequam+Do methodology, designed by the Colombian consulting company Aequam, combines logical reasoning processes with intuitive elements, encouraging problem solving through creativity, imagination and the sensory system. In our project, 24 SME entrepreneurs participated in a financial literacy training programme, attending 16 sessions of which 11 face-to-face in class and 5 virtual.

Our project in a nutshell

In the first few sessions, we made a diagnosis of each participant’s financial situation by identifying the elements that determined their current financial situation, main challenges, achievements and failures. We also identified rational, emotional, technical and empirical factors that influenced their decisions and financial choices so far.

Next, we arranged a series of personal meetings with facilitators and more experienced entrepreneurs, covering topics related to income, savings, planning and debt. We also unfolded specific strategies for separating business and personal finances.

In the last session, participants drew up various commitment and action plans to generate real and effective changes in their financial management.

Financial well-being, knowledge and skills

Which changes do the Aequam+Do participants experience? Firstly, we wanted to know whether their financial well-being improved. Participants who completed the programme do indeed agree with the following statements: “I am securing my financial future” and “I can enjoy life because of the way I’m managing my money”. We found that participants who engaged in constructive financial behaviours after the programme – like reducing financial leaks – reported experiencing improvements in their financial well-being.

Secondly, do they experience changes in their financial knowledge, following programme participation? Our analysis showed that the participants’ scores for financial knowledge were indeed higher after the programme. The materials and exercises used during the sessions were not particularly focused on technical financial knowledge, but some crucial financial concepts were discussed and explained. Although we believe that financial decisions are influenced by multiple factors, it is indisputable that better financial literacy helps people to make better decisions.

Thirdly, do the entrepreneurs experience changes in their financial skills, following programme participation? After all, financial skills help individuals to execute financial decisions. We looked at the participants’ financial skills by measuring their financial self-efficacy, which indicates their confidence in their ability to complete a financial task. We found that their self-efficacy was indeed higher after the programme. Self-efficacy is an important skill, given that lack of self-confidence is a common barrier to behavioural change. People need higher levels of financial self-efficacy to be successful in improving their financial situation.

Impulse buying and money-related emotions

We also measured participants’ impulse buying behaviour, which refers to buying in a spontaneous, unreflective and immediate fashion. Impulse buying is dangerous because it can cause financial problems such as a significant and unmanageable amount of debt. Research has shown that people who can control their impulsive spending behaviour have better financial management practices and higher financial well-being. Former participants of Aequam+Do do indeed report a decrease in their tendency to buy impulsively.

Another research question was whether the participants experienced changes in their financial attitudes and money-related emotions. Psychologists have previously demonstrated the significant role of attitudes and emotions in people’s decisions. We found that after the programme, participants’ negative attitude about money was no longer as strong. A focus on money being dirty, immoral or bad can turn into an intellectual barrier to making profit and allowing the business to grow. It is hard to be successful whilst being embarrassed to discuss money or, in some cases, even reluctant to charge clients at all. Our analysis suggests that after the programme, participants felt more positive about engaging in supportive financial behaviours such as taking credit, investing money, planning expenditures and saving money.

Emotion versus rationality

Many financial decisions are more emotional than rational. Ultimately, it comes down to what feels right. Saving money or planning expenditures just isn’t pleasant for most people, and we generally try to avoid unpleasant activities. One strategy we could pick to make these behaviours less cumbersome is to develop deeper emotional incentives for engaging with them. These may enable consumers to relate saving, planning or investing to whatever means a lot to them, such as their family, certain values, or life goals.

That’s why we investigated whether the Aequam+Do participants experienced positive changes in their financial behaviours. Results showed that after the programme, the majority of the participants had detected and eliminated financial leaks, had taken actions to separate their business and personal finances, and were finally dealing with problematic debt instead of ignoring it. Participants were not quite as quick in forming an income-smoothing fund that would allow them to manage income volatility. However, 50% of the participants said they would do so in the future.

A note about your financial personality

If you are an entrepreneur looking to improve your financial situation, it is important to know that in order to make better decisions, you need to involve both brain and heart. Needless to say, it is important to understand the technicalities of financial issues, but it is just as crucial to discover your own financial decision making style. Try to identify the belief system and ideas about money management that you have incorporated throughout your life. These ideas define your identity, shape your thinking, and govern your behaviour. Ask yourself whether you see money as an instrument of development, growth and prosperity – or as something bad and immoral. Think about other preconceptions about money that you might have, and confront them. Where do they come from? Might they be negatively affecting your disposition towards learning about financial issues, or towards making sound financial decisions?

Your personality is aligned with the way you approach and resolve money issues and make financial decisions. Do not fight with your financial personality but get to know it and use it in your favour. For example, if you need to keep a record of how much money you receive and spend, you can do this by using an app, or in Excel or in an old-fashioned notebook – or any other method that works for you. What works for your (business) acquaintances may not work for you at all. Be sure to pick the tool that best matches the way you think.

We would like to invite companies and organisations developing financial education programmes to combine logical reasoning processes with intuitive elements. These may greatly promote the learning curve and the acquisition of knowledge, tools and good money management guidelines. They boost responsible and sustainable management of personal and family finances. In all cases, financial education programmes should inspire and motivate participants to better their own behaviour by generating a scenario that promotes confidence and security.