Financial education: not all about numbers or calculations

by Catalina Estrada-Mejía, María Piedad Valero and Daniela Castaño
Posted on May 23, 2019

If you’re the type of person who consciously avoids any form of financial education because you’re “not good with numbers”, we have good news for you. As it turns out, numbers are just one side of the story. Your emotions and your rational thinking determine the other side, and this is exactly what our intervention programme, Aequam+Do, is all about. Aequam+Do demonstrates that effective money management is achieved when both the emotional and the rational components are in balance.

Although financial education is important for everybody, this project is oriented primarily towards entrepreneurs with small-sized companies. Our aim is to help them acquire more financial knowledge, master effective financial skills, and enjoy better financial outcomes. We focus specifically on reducing their earnings insecurity and volatility, and helping them recognise problematic debt, empowering them to cope with their financial situation after completing the programme.

“The 16-week intervention tries to generate real, effective and lasting changes in people's financial management.”

Aequam+Do: an intervention in 3 phases

The intervention is developed in 16 weeks and consists of three phases:

  • In phase 1 (two weeks), we assess the financial situation of each participant. We base our assessment on three large dimensions: representation of reality, internal operating system and degree of technical financial knowledge. At this stage participants identify the elements that have been determining their current financial situation, and their main challenges, achievements, and failures. They also identify rational, emotional, technical and empirical factors that have influenced their decisions and financial choices in the past.
  • In phase 2 (12 weeks), we develop the main stage of the pedagogical process, by confronting participants with their unconscious financial behaviour and decision-making process. This phase is filled with practical and straightforward exercises.
  • The program ends with phase 3 (2 weeks), in which participants carry out an exercise which summarizes and synthesizes the work they did during the intervention. They recap their list of commitments and action plans they will follow to generate real, effective and lasting changes in their financial management.

The impact of Aequam+Do has been particularly revealing in the second phase. The entrepreneurs have had the chance to confront their knowledge, habits and beliefs towards money. It has been a self-reflective space for reconsidering their approach to money.

“Entrepreneurs apply the same good or bad strategies for managing their company's finances as they apply at home managing their personal finances.”

Business or personal?

One of the main lessons learned was that they needed to organise their personal finances before organising the finances of their company. The (good or bad) strategies they were using for managing their personal finances corresponded with the (good or bad) strategies they were using to manage the finances of their enterprise. Participants with a tendency to make impulsive purchases at home, for instance, were also making impulsive financial business decisions. Similarly, participants who disliked spending money on personal items also showed a dislike for spending company money.

So far, the project has shown that small actions have big impacts on the way participants manage their finances. They discovered the importance of controlling financial leaks – silent expenses that are made unconsciously, frequently and off budget. Like paying for internet and phone subscriptions from different providers, whilst package deals are often a lot cheaper. Or spending money on cell phone plans that do not match their needs (anymore). Or never unsubscribing from automatic signups that started off as free trials but have been silently transformed into paid subscriptions. As small as these financial leaks may seem, the holes they make in company budgets can be rather large. Worse still, they exacerbate disorder and misuse of money. During the practical exercises, entrepreneurs managed to identify between 5 to 10 financial leaks that affected not only their personal finances, but their corporate finances too. Afterwards, they developed a plan to eliminate the leaks or to acknowledge them in their budget.

In informal conversations with some of the participants, we were happy to discover that they are already busy reorganising their personal finances and starting to control their financial leaks. During the third phase, we will follow up more closely and see how effectively they implement their actions. After the final data collection, we will have a better view on the effectiveness of the intervention: will it generate real and lasting change in the financial management of entrepreneurs? We are quite confident it will.

“This programme has shaken up my life in a way I never expected. I am impressed.”

Impression of a participant of Aequam+Do, during the 6th session of the programme

BONUS: 7 ways to improve your financial situation (whether or not you run a company)

1. Track your monthly expenses and income. Keep a record of how much money you receive and how much money you spend. You can do this in an Excel file or in a notebook, by taking pictures of receipts, using an app or any other method that works for you. What works for your (business) acquaintances may not work for you: pick the tool that matches the way you think.

2. Use categories to distribute your expenses. Divide your monthly expenses in three categories: expenses that are mandatory (rent, food, health insurance…), expenses that could be avoided if necessary (eating out, gym plans, magazine subscriptions), and expenses that are easily avoided (Netflix). Knowing which expenses are mandatory and which are optional is a big step towards financial planning and organization.

3. Be prepared for unexpected expenses. These are one of the main causes of financial disorder and indebtedness. In order to avoid confusion with “occasional” expenses, define what “unexpected” means to you, and then build a reserve of money to meet that need.

4. Recognize the “invisible” expenses that occur in your daily life. You may wish to avoid expenses you make on automatic pilot, like buying a relatively expensive coffee each morning. It might take some time to get used to deny yourself such little luxuries, but in the end, they make a big difference to your savings.

5. Prepare your budget in advance to cover special events. Do not let your mother’s birthday foul up your finances.

6. Trace a limit between your corporate finances and personal ones. Do not take money from your pocket to pay your business taxes or the office paper supply. Your business should be self-sustaining.

7. Be aware of your predominant brain hemisphere and challenge it. The left hemisphere is primarily responsible for logical thinking and analysis. The right side, on the other hand, is more creative and acts on feelings and emotions. We all have a dominant side that we tend to rely on almost automatically when making decisions. Keep in mind that the best decision is often a combination of emotions and reason.