By Nathaniel Archer Lawrence
[6 min read]
As discussed in my previous piece “Brazil’s Complicated Relationship with Money,” Brazil has cultivated an abundance of financial education initiatives, 1,400 in fact.[1] Among these programs, however, one category remains conspicuously absent: small business. In total, small business represents a mere 1% of total initiatives.[2]
This is puzzling in the Brazilian context, as small business is such a conspicuous, and critical, pillar of the economy. Micro and small enterprises (MSEs) make up 99% of total Brazilian businesses, provide 55% of employment and 44% of total wages, and produce 27.5% of GDP.[3] And up until now, the entrepreneurs behind them have supported the economy as such with nearly no formal training, let alone bookkeeping.
The terms “informal business” (an unregistered business operating off the books) and “necessity entrepreneurship” (entrepreneurship in the face of no other economic opportunity) often come up in the rhetoric around Brazil’s MSEs. While the former is inaccurate given that these 14 million businesses do possess formal business registrations (CNPJ), the latter obfuscates the true motivations, talents, and potentials of so many businesses.
While many MSEs in Brazil may appear necessity enterprises, only 30% of MSE business owners cite unemployment as the reason why they opened their businesses. 17% began their business because they perceived a business opportunity, 13% wanted to be their own boss, and another 12% started because the work was truly their passion.[4] In other words, MSE entrepreneurship follows the same pattern as any other form of entrepreneurship. It is the pursuit of profit in passion.
Where Brazilian MSEs do face more unique challenge is in their training, or rather lack thereof. Only 23% of business owners have participated in any formal training,[5] meaning that most do not open their businesses prepared to track their finances and operations systematically from day one. 42% of MSE business owners have only completed secondary schooling, while 38% have completed less.[6]
These education levels require specialized adult-education pedagogy, which I have not yet observed in most training programs available in Brazil. They also require training that addresses Brazil’s years of distorted, economically rational decision-making (see “Brazil’s Complicated Relationship with Money”). Moreover, they necessitate a shift away from rote-learning approaches, focusing on teaching concepts and terms, towards actionable techniques and putting them into practice.
My work and research in training business owners has revealed that from a pedagogical perspective, effective education derives from three key dimensions: accurate learner-content matching, sufficient material interactivity, and culturally relatable explanations.
Not only do business owners each face unique challenges, but they also bring differing levels of experience and learning styles. With as low an uptake rate as classroom-style financial education generally produces,[7] matching learner profiles with the appropriate content, or “learning elements,” is imperative for their learning[8] and business success.
Inherently, habit development cannot occur without practice and implementation. Too often, financial education programs do not offer learners the opportunity to apply their learning early and in a controlled environment with teacher support, with only 25% of all program in Brazil evaluating students in any way.1 Training with interactive learning materials provides this chance[9] and can be as simple as walking a business owner through creating their business’s actual budget rather than one from a case study, as is often the case. This immediate hands-on practice allows business owners to apply the skills they are acquiring with guidance; resolve the doubts or issues they otherwise encounter alone, which cause high habit-development drop-off rates; and comprehend the benefits of the training from the start.
Most fundamentally, however, effectively communicating concepts lies at the heart of learner understanding, and considering the socio-cultural differences that can exist between financial education provider and learner, it can be dangerously easy to assume certain vocabulary and explanations properly convey the information. Overcoming this communication gap requires colloquial language[10] as well as intuitive and relatable comparisons, which analogies and metaphors achieve quite efficiently.[11]
Properly balancing these three components – relevant learning content, interactive material, and culturally relatable language – fosters a safe learning environment that produces confident business owners, who have already begun their financial and management planning habit development by the end of any training. While this proposition might seem intuitive, I have observed few, if any, programs employ such a method.
As research in financial and entrepreneurship training consistently demonstrates globally, this educational challenge is best overcome through on-site, individualized guidance and consulting.[12] In my experience, individual attention and interaction have been the simplest ways to optimize learner-content matching, sufficient material interactivity, and culturally appropriate language. In fact, among management consultancy firms for large-sized business, this individualized approach is essentially the model: deeply studying businesses’ unique circumstances, developing bespoke solutions, and then training to businesses to employ them. That Brazil’s MSEs do not receive this approach is simply a matter of cost structure and scale: they cannot afford the high fees of the current model while providers have not developed a method to deliver solutions to this 14-million-enterprise market that is capable of driving the delivery costs down.
Designing such a model would be no small feat. Any operation on the scale of millions requires significant resources, and given the need for at least some degree of individualized attention to ensure educational impact, logistics poses an additional obstacle. Geographically speaking, 51% of MSEs are in southeastern Brazil, with 13% in the cities of São Paulo and Rio de Janeiro areas alone[13]; however, even transportation within cities can be time consuming and costly. This logistical challenge strongly suggests a technological component to any model or solution. Ironically, technological solutions – whether educational or accounting – often reduce the degree of human contact and individual attention that facilitates the still yet unachieved financial habit development and learning.
Recently, “centaur” approaches, which blend technology and human interaction, have garnered attention by offering a strategy to balance the need for scale and cost.[14] At the end of the day, however, such discussions of technology may be premature. The fact is that we as financial and entrepreneurship educators and of the economic development field still must discover how to optimize these components for MSE owners, and we can only achieve that on the ground, side by side with our learners and market. It requires long, personal conversations and our own humility to recognize that we do not have the answer. Brazilian micro- and small business owners have the answer, and it is about time that we asked them.
[1] Associação de Educação Financeira do Brasil. (2018). Mapeamento de iniciativas de educação financeira: Abril/2018.
[2] Moraes, F., Castro, P., & Morais, S. (2013). Mapa da Educação Financeira no Brasil. Associação de Educação Financeira do Brasil.
[3] Governo Federal do Brasil. (2019). Empresa Simples de Crédito pode injetar R$20 bilhões por ano nos pequenos negócios. Brasil.gov.br. Retrieved April 24, 2019, from http://www.brasil.gov.br/noticias/economia-e-financas/2019/04/empresa-simples-de-credito-pode-injetar-r-20-bilhoes-por-ano-nos-pequenos-negocios
[4] Instituto de Estudos do Trabalho e Sociedade. (2012). Pesquisa sobre Microempreendedorismo em Domicílios nas Favelas com Unidades de Polícia Pacificadora. Rio de Janeiro.
[5] SEBRAE. (2018). Educação Financeira do MEI: Maio 2018. Retrieved from http://www.bibliotecas.sebrae.com.br/chronus/ARQUIVOS_CHRONUS/bds/bds.nsf/fe6869d6dee6e276445bab70b4af687c/$File/9939.pdf
[6] SEBRAE. (2016). Perfil do Microempreendedor Individual: 2015. Brasília. Retrieved from https://m.sebrae.com.br/Sebrae/Portal Sebrae/Anexos/Perfil do MEI 2015.pdf
[7] Bruhn, M., Legovini, A., Zia, B., Leão, L. de S., & Marchetti, R. (2014). The Impact of High School Financial Education: Large-Scale Experimental Evidence from Brazil (Policy Research Working Paper No. 6723). Washington, DC: The World Bank.
[8] Van Merriënboer, J. J. G., & Ayres, P. (2005). Research on Cognitive Load Theory and Its Design Implications for E-Learning. Educational Technology Research and Development, 53(3), 5–13. http://doi.org/10.1007/BF02504793
[9] Carpena, F., Cole, S., Shapiro, J., & Zia, B. (2015). The ABCs of Financial Education: Experimental Evidence on Attitudes, Behavior and Cognitive Biases (Policy Research Working Paper No. 7413). Washington, DC: The World Bank.
[10] Moreno, R., & Mayer, R. E. (2000). Engaging Students in Active Learning: The case for Personalized Multimedia Messages. Journal of Educational Psychology, 92(4), 724–733. https://doi.org/10.1037/0022-0663.92.4.724
[11] Stroud, M. J., & Schwartz, N. H. (2010). Summoning Prior Knowledge Through Metaphorical Graphics: An Example in Chemistry Instruction. Journal of Educational Research, 103, 351–366. https://doi.org/10.1080/00220670903383077
[12] McKenzie, D., & Woodruff, C. (2013). What Are We Learning from Business Training and Entrepreneurship Evaluations around the Developing World? World Bank Research Observer, 29(1), 48–82. https://doi.org/10.1093/wbro/lkt007
[13] SEBRAE. (2016). Perfil do Microempreendedor Individual: 2015. Brasília. Retreived from https://m.sebrae.com.br/Sebrae/Portal Sebrae/Anexos/Perfil do MEI 2015.pdf
[14] Beggs Olsen, A. (2017). Uniting Tech and Touch Why Centaur Products Are Better for Consumers and Providers. Center for Financial Inclusion.
Nathaniel Lawrence is a researcher at the Núcleo Interdisciplinar de Educação Financeira at the Pontifícia Universidade Católica do Rio de Janeiro and the founder of Blue Economic Solutions, a company that provides training to microbusinesses in Brazil’s low-income communities.
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