Starting Your Own Gig and Managing the Band

This is part of a series. If you have not read the articles that build up to this one, I recommend that you do so first.

Entrepreneurship seems to be almost as much of the tale of the American Dream as Mom, apple pie, and the flag. Most people, somewhere along the way, have the bug to start up their own businesses. I did. It’s one of the reasons I wound up transferring into the University of Virginia business school from law school (bet you didn’t know that I started out planning on being a lawyer, huh?); I had the entrepreneurship bug. In fact, I’d already started one company, which didn’t work out so well.

However, while the spirit may be willing, to paraphrase a famous religious text, the body often isn’t able. 70% of working Americans would like to be able to gain skills from work which enable them to start their own business, but only 15% of them actually feel like they have the skills or knowhow to actually start one.

I was fortunate enough to build a business, grow it to multi-million dollar revenue figures, and subsequently sell my share to my co-founder for a sizeable amount. This was after having had the company be my primary source of income in the form of a paycheck to myself for five years. Our initial investment was $1,200: $400 per co-founder. My ROI on that investment was VC-esque.

Not everyone who starts out a company will get that type of return.

What you’re going to learn in this article is the playbook that I used to get to that point as well as what I’ve seen acting as a board member for multiple successful mid-sized businesses and the items I think you can learn and use if you want to try to start your own company.

First, though, let’s do some reality checks.

According to the U.S. Small Business Administration, more than half startups end in the first five years. Only 34% of companies survive for 10 or more years. You need to plan to succeed but prepare to fail, because, statistically speaking, that’s what is going to happen 2/3 of the time. So, if you’re going to start a small business, then you need to be prepared so that you’re not financially ruined if your small business isn’t in the 34%. Furthermore, although the SBA doesn’t provide these numbers (it’s not in their interest to), I’d argue that many of the survivors aren’t really doing that well; many of them probably don’t make enough money to pay their owners wages and are somehow being kept afloat by sources of income aside from revenues.

In order to have a successful small business, you need to have something which others are willing to pay you for. It could be your expertise. It could be your ability to reduce the amount of time or irritation that it takes for someone else to do something. It could be a product or a widget. You don’t have to be the best in the world at whatever it is that you’re planning to offer, but you do have to be good enough that people are willing to cede some of their hard-earned money in exchange for you providing whatever it is that you will provide.

Furthermore, the pursuit of entrepreneurship is not something that you should simply up and quit your day job to embark upon. When I left Capital One, I negotiated an exit pay package because my team was being eliminated. I had several months of salary for the package as well as us having a healthy emergency fund. Additionally, my wife had her job, and we were able to meet our expenses with her income. While we weren’t contributing to our retirement during the time that the company I founded didn’t bring in revenues, we weren’t spending more than we were bringing in. Had this not been the case, and had we not already possessed a significant cushion to give me sufficient time to grow the company, I probably wouldn’t have started it in the first place, and you wouldn’t be reading this!

You also need to enjoy doing whatever it is that you’re going to be doing when you start up your entrepreneurial venture. You’re going to spend a lot of your spare time working to grow your business, bring in customers, and then blow them away with a great service or product. It’s a ton of time to be spending doing something, and if you’re doing it solely because you think it’s going to make you money, you need to reevaluate your priorities. I can tell you that one of the driving factors for me deciding to sell a growing company at a relative undervaluation compared to what I could have received had I held on for a year or two more (which has been borne out by the continued growth of the company) was because I was burned out. While I had occasional spikes of activity, I was only really working between 16-24 hours a week at the company, and, yet, I was still burned out and ready to move on.

The opportunity to make money can only drive you so far. The rest of the motivation has to come from within.

Table of Contents

So You Wanna Be an Entrepreneur? Do ya?

The first question that we need to examine is whether or not you really want to be an entrepreneur. If you’re going to quit your day job to become one or you’re going to start a side gig, don’t just assume that entrepreneurship is right for you. Here are some of the questions you’re going to have to answer:

Do you have the time to work an additional 40-60 hours per week? Entrepreneurship is all-encompassing if you really want to make a proper go of it. If you’re starting up a new business as your day job, there’s always more hustling and selling you can do. If you’re starting up a side gig, you’re going to be spending evenings and weekends working on your business. If you’re going to do it, you want to give entrepreneurship everything that you have so that if it doesn’t work out, you’re not going to be left wondering whether or not you could have made it successful if you would have only worked just a little bit harder.
Are you willing to spend the next six months to a year trying to build your business, working on it, and not taking a break? I didn’t go on vacation for two years, and in the priority list which we built back in “Answering the Question Why About Your Money,” travel is in my top 5 priorities. I skipped my 10 year West Point reunion, family trips, everything because I was working on building up my business to the point where it was sustainable. There are going to be days when it seems like you’re stuck in the hamster wheel, when the groundhog has seen his shadow, and when you’re having to head back down into the salt mines. You have to possess the motivation and dedication to keep going, even when it feels like a slog.
Can you keep yourself focused on the top few tasks to grow your business? If you’re someone who needs to take direction from a boss and to be told what to do, entrepreneurship is not for you. There’s nothing wrong with you; you can be extremely successful in life without ever being a manager or being your own boss. There are all types of people in the world. I know it sounds cliché, but it’s true, and, I assure you, we hired a lot of them and they have done very well.
Does rejection get you down? Unless you can sell oxygen when the planet runs out of it, you’re going to get rejected many, many, many times. Even when people pick up the phone and call you or take the effort to e-mail you or fill in a form on your site, you’re not going to close every sale. Until you can build up your company to the point where there is more inbound demand for your work than you can handle, you’re going to face rejection. You’ll face rejection even then, but it won’t be as painful! J When you’re just starting up and you’re dying to get that first sale, you’re probably going to have to go through a lot of “no” before you get to that “yes.”
Can you find people to buy what you’re selling beyond friends and family? This question gets down to the issue of sustainability. Your parents or siblings or closest friends will probably be your first source of potential customers, but, unless your brother is Bill Gates and he needs an unlimited supply of whatever it is that you’re selling, that source of revenues is going to quickly dry up. While I hired friends to do work for us when they were starting up and trying to establish their own freelancing careers, I only received one lead for work from a friend, and while the connection was because of our friendship, we won the work because we were the best value and most capable of delivering what they needed (a hint of who it was is below).

Do you have the money to otherwise support yourself while you’re waiting for revenues to come in? Not every company is going to have to go through a long, dry spell before getting money in the door. Sometimes the demand is there from the moment you start. If it’s not, you need to have your finances set up to where you have other sources of income while you’re waiting to see if your business is going to be viable.
(If applicable) Is your spouse onboard for this adventure? When I was going through the recruiting process for our entrepreneurs in residence at my private equity fund, if the candidate was married, the last gating mechanism was a dinner with the spouse. I needed to know that the spouse knew what was involved in being the CEO of a company, that not only did it entail longer hours at work, but it also entailed a significant amount of mind share even when the CEO was away from work. At dinner, I’d relate the story of my own inability to shut off my thinking about my company even when I was on vacation. I told the candidates that even though they’d potentially be responsible for the good stewardship of millions of dollars of investor money, their most important investor was their spouse.

This Gig’s for You. Now What?

If you decide that you truly do want to try to start your own business, I want you to read about the 6 month, $1,000 rule That’s the foundation of startup management for 90-95% of businesses. Unless you have some sort of intellectual property which requires protection and development, or you’re going to need special expensive machinery to build the widget of your dreams, then you really should be looking to limit your potential losses and trade sheer sweat equity and hustle for monetary investment, particularly at the beginning stage. If you really think that you need to go out and raise money, ask yourself (several times) whether or not you need that money and if you could find some other way to build the business without raising money. Raising money and/or having partners complicates business affairs and creates several issues to deal with that starting out as a solo entrepreneur doesn’t.

It’s easy to fall into the trap of thinking that you need to have all sorts of legal forms filled out, hire several people to help you with accounting, marketing, and the like.

It’s not true; at least, it’s not true at first. If you never become a viable concern because you can’t sell anything, then there’s nothing for you to file or report. You’ll have a small business loss on your taxes, but beyond that, there won’t really be anything of note to mark the existence of your efforts. If you start to get some customers and gain traction and become convinced that you could potentially make a real go of it, then you’ll want to address some of the other issues, but, in the beginning, you’ll want to keep it as simple as possible.

Here are the bare minimum items that you do need before you start:

A go/no-go decision trigger. You need to, before you even start, decide how long you’re going to give your attempt at entrepreneurship to succeed, and how much money you’re willing to bankroll your efforts with. Once you have set those limits, there’s no going back. OK. You can add more time. But you can’t add money. When you’re an entrepreneur, it’s very easy to fall prey to the bias known as locus of control, where you think that success is all because of you and failure is all because of external factors. That’s why it’s important to set, beforehand, your decision point where you’ll terminate your business if you don’t reach certain goals. You don’t necessarily have to reach profitability at the decision point, but you do need to know that you’re on track to successful selling. In a vast majority of the cases, if you can sell, then you can eventually sell profitably.
The legal authority to conduct business. This will probably include a business license from your city, county, or state. At this point, you don’t necessarily have to incorporate your business because of what we’ll discuss in the next point. Just because you aren’t incorporating at this point doesn’t mean that you can ignore the business rules. You still need permission from the appropriate government authority to sell whatever it is that you’re selling.
An umbrella liability insurance policy. While the intent of a corporate entity is to protect you from personal liability in case something goes wrong, there just aren’t that many instances where this is going to occur, making forming a corporate entity an unnecessary expense when you start up. If you have an umbrella liability insurance policy, then you’re going to have similar coverage, namely protection of your personal assets in the event that something goes horribly wrong. The general rule is to have 125% of your net worth in an umbrella liability insurance policy. Make sure that the policy will cover your business as well in the event of legal action. The exception to this rule is if you’re selling something which could be potentially dangerous (medical equipment, military services, etc.). Then, you will need to incorporate AND get corporate liability insurance, including errors and omissions (E&O) insurance. When you’re starting out, though, if you’re not in one of those categories, umbrella liability insurance should cover you. It’s usually a good idea to have umbrella liability once your net worth exceeds $250,000 anyway, as it can protect you against overly litigious individuals, although you never want to advertise that you have it.

If you are going to engage in a partnership when starting your business, you will need to form a corporate entity. We used standard bylaws found on the Internet, but you will want to get a good buy-sell agreement because, while you’re seeing stars and rainbows when you start your business, partnerships don’t always last, and you need to have a legally binding way of letting one partner go. It’s worth spending the money on a solid buy-sell agreement.

There are a couple of other investments which are not required, but could help you with your marketing efforts.

A website. You don’t have to have an extremely professional website. You can get a website hosted at a reasonable price from a hosting company like Bluehost (that’s who I use), and you can use WordPress, which is a free content management system. It’s easy to use and doesn’t require any programming knowledge, although you will serve yourself well by learning basic HTML. The cost of such an arrangement shouldn’t cost you more than $150 per year.
E-mail list management. The value of having a website is getting people to confirm to you that they want to hear more from you. I use a newsletter (many of you subscribed to it) for sharing information that nobody else gets to see and is a good way to build trust. Mailchimp is a free service for up to 2,500 subscribers, although it does not use a double opt-in system where a subscriber must confirm that he wanted to subscribe by clicking on a link e-mailed to him. AWeber has a flat $19/month cost and uses double opt-in. If you ever sell your company and sell your list, you will want the double opt-in, but, if you’re just starting out, you could use Mailchimp. If you get more than about 100 subscribers, switch over to AWeber and manually convert the Mailchimp subscribers. There are plenty of articles on the Internet for how to accomplish this.
Business cards. If you’re going to be conducting a lot of in-person marketing, then you should have a business card. It doesn’t have to be fancy, but it does need to be a step above the VistaPrint free cards where “Printed for free by VistaPrint” is on the back of the card. I personally use Moo, http://us.moo.com for buying cards 250 at a time. They’re slightly more expensive than some other providers, but the cards are sturdy, thick, and easy to design; plus, the customer service is great.

The Easy Part is Done, Now What?

The biggest mistake many entrepreneurs make is trying to create the perfect offering. Perfect does not pay the bills and it does not bring money into the business. You need to focus, from the beginning, on getting customers.

However, your first few customers do not have to be paying customers.

Huh?

Yes, your goal is to eventually get people who will pay you for whatever it is that you’re selling. If you can do that from the beginning, then that’s great. If not, then there are a couple of other exchanges for value that you can ask for.

If someone else is good at website design or marketing or accounting or whatever you need, then perhaps you can exchange what you do for what they do. It will save both parties from having to shell out hard-earned money when it’s at a premium.
One of the most important techniques for gaining trust with potential clients is testimonials from others about what you’ve provided. It lowers the perceived risk from a potential buyer when that buyer can see others saying that they made the purchase and that they were very happy with what they did. While I can’t use testimonials as a financial planner, because it’s against the rules that the SEC sets forth, we used them at my previous company: You can’t go working for free forever, though. Barters almost never put food on the table consistently, and testimonials never do. When we first started out, my partners and I joked that we were actually an involuntary non-profit, since we didn’t have enough revenues coming in to pay full-time salaries. Once you get enough testimonials so that you can create credibility and trust with what you are selling, you need to move on to getting paid real money.

In terms of what goals you should set, I can’t really tell you specifically, since it’s dependent on what you’re doing. If you’re selling $20 hand-crafted dolls versus $500/hour high end consulting, the metrics are going to vary. I do have two milestones for your six month birth date of your business:

Have at least one paying customer. The true test of whether or not your business is viable is whether or not someone is willing to open up the wallet and part with real, hard-earned money. Since, as we saw previously, spending real cash causes pain centers in the brain to light up, you have to offer something of benefit that exceeds the pain caused by the parting with money. However, one customer may not be sufficient, because you also want to
Have recouped your initial expenses. Not only do you want someone to pay you, you want to be back at least to breakeven on your initial expenditures. This is the metric of long-term profitability of what you’re selling. You don’t want to be in the business model like many of the late 90s and early 2000s Internet “darlings” were – “lose a little on each sale and make it up in volume.” If you quit your job to start a business, then this number needs to be “enough money to live on each month” rather than just getting back to even terms off of your initial investment.

I can’t tell you how to market what it is that you’re selling. At the risk of demonstrating a stranglehold on the obvious, different products and different services require different approaches to marketing. There are a couple of universal aspects to selling that you need to know. First, be wherever your potential customers are. This could be physically, going to craft fairs, meetups, or vendor days, or it could be virtual, contributing to websites and forums where potential customers ask questions. The second aspect is address objections before they arise. Go through the buying process from the eyes of a customer (a spouse, sibling, or friend can help you with this exercise) and come up with all of the potential questions that the person would have. What information would he need to make a purchasing decision? What information could dissuade him from buying? Why wouldn’t he buy?

If you’re new to marketing and selling, go to your local library and check out some of Zig Ziglar’s books (#aff). They’re great for giving you the basic foundations of selling and framing up your sales presentations to lead people to buy. After all, you wouldn’t be selling if it wasn’t right for people, would you?

If you pass the first two milestones, a new question is going to inevitably creep in.

At what point can I make the jump from my current job to running this business full-time?

For a few people who start side gigs, that’s all they ever want from it – a little income on the side, getting paid to do something they enjoy. For the rest of them, they’re looking for an escape from their current employers, or the corporate world in general, either for the freedom that it offers or the potential money they can make.

I need to dispel a couple of notions about entrepreneurship before we continue.

The first is the notion that entrepreneurship means freedom from work. It’s far from it. You’ll almost certainly work harder and longer as an entrepreneur than you ever did for a standard job. Because there’s no safety net once you’ve made the complete commitment to entrepreneurship, you’ll stress about it day and night until it gets to a point of relative safety. You may be optimistic about your chances, but optimism does not mean security. Even on your “days off,” you’ll still probably work. You’ll think about it while you’re on vacation (if you take it). Your nights will be consumed with doing something. There’s always more to be done.

You may be able to work at home or get a small office and work in your boxers and a t-shirt (as I have done many times). There will be many times, though, when you’ll need to meet with people and continue to look professional and trustworthy, just like you did with your job. There are very few truly location-independent, lifestyle entrepreneurial ventures that you can pursue. If you can get one, great! Just don’t expect most of these opportunities to look like The Four Hour Workweek (#aff).

The second misconception is that starting up your own business is going to lead to huge leaps in income and net worth. It’s possible that you may build and grow a business to where you’re able to see that type of return, and it’s certainly a goal to shoot for, but the reality is that most small businesses are not salable. The primary reason that they’re not salable is that the future revenues and profits are dependent on the owner. If you’re selling your personal knowledge in grooming opossums as an opossum groomer and you’re the only one who can do it, then nobody else would want to buy that business, since you’d be the only person who knew how to do the work.

Thus, a primary goal in continuing a business should be to provide you and your family with a steady, reliable source of income. The secondary goal, and probably far secondary, would be to build the business to the point where it becomes salable.

There are three main aspects to building a business that can be sold:

The business is not dependent on the seller to continue running. If the business could survive, thrive, and prosper without the owner, then it’s a viable acquisition target. Buyers are looking for:
1. Growth. Does the business have the ability to grow profits in the future?
2. Stability. Can the business survive downturns and is it defensible, i.e. can something come along tomorrow, be the next best thing, and sink the sales of the company?
Processes are in place to ensure the continuity of results. In many industries, this means a product that has some foothold in the marketplace or it means automation and standardization of services. Buyers want assurance that results are replicable and now just down to the skills of the owner.
The buyers need to see a strategic fit in acquiring the business. There are any number of reasons that a buyer would be interested in a business. The business could complement other offerings. It could be a competitor, so the buyout would reduce dangerous competition. It could even be someone who is looking to become an entrepreneur but doesn’t want to have to go through the startup phase of building a business and wants one that’s already prepackaged – “business in a box.”

This is not meant to be a deep examination of selling and valuation, but it is important that, as you grow your business, you keep those aspects in mind, as eventually, if you are successful, you will want to develop an exit strategy.

In the interim, if you grow the business to the point where it is profitable and can pay you a reasonable salary, you will want to explore retirement vehicles which are available to you that are not available to the regular run of the mill employee.

Do you need to hire?

One of the mistakes I’ve seen with small businesses that started out well and then flamed out was that they went out and hired a bunch of people, then had trouble with revenues, couldn’t make payroll, and had to shut their doors. These business owners saw a little growth in revenues and immediately projected out to the future that growth would continue at that pace (or more), and that they needed to hire to meet that projected demand, when they didn’t even have money in the bank to pay those employees.

It’s easy to start thinking your own cooking is the best in the world. We almost fell into that trap. We started hiring people based on contracts and projected growth, and when we had a contract fall through, we almost ate through all of our capital before we could find more work for everyone. It is a dicey situation that you want to avoid if you possibly can.

My guideline for when to hire the first employee is fairly simple: when you have enough work coming in that you’re having to turn down work, and the work that you’d have to turn down would be enough to pay the fully loaded cost of an employee. Don’t fall into the trap of thinking that an employee’s salary is the only thing that you’ll need to pay. You’ll also have to pay federal and state employer taxes (FICA, Social Security, unemployment insurance, and state withholdings, where needed). That’s going to be anywhere from 8% – 15% above the salary. If you provide benefits, you’ll also need to pay for them. Those costs combined are called an employee’s fully loaded cost. You need to have enough incoming revenue to justify paying the fully loaded cost plus have profit left over. There’s no point in expanding if you can’t do so profitably.

The second guideline is for further expansion. Once we went through the scare of almost not making payroll, we decided that, for future employee hires, we needed to have six months of fully loaded costs for our current staff plus the new employee before we hired. That approach may have hamstrung our growth slightly, but it also ensured that we were never at financial risk when we brought on new people. I’d rather live with too much cushion in the business than too little cushion.

Eventually, you’ll get a feel for the ebb and flow of your business and the cycles of when your customers come in. Then, you will be able to better gauge when and if you need to hire.

But, how do you service in the interim?

We used contractors. We tried to keep our contractors-to-employees ratio anywhere from 2:1 to 3:1. Contractors were great because they usually had special skills. They weren’t necessarily looking to get hired. We could let them go with no notice. We didn’t have to pay employer taxes or benefits for them. They were usually more expensive by the hour than an employee, since they had to account for their own risk of being laid off and they had to pay for their own benefits; however, since our work was not constant—we were a services company—we didn’t have to pay for employees who were not doing revenue-generating work, as we could keep them on core contracts and put contractors on the variable work.

If you use contractors, make sure that you do not fall afoul of the guidelines that determine what is a contractor and what is an employee. While you may think the person you’ve hired is a contractor, the IRS may disagree. Ensure that you are abiding by the IRS’s guidelines.

Retirement plan benefits of entrepreneurship

Now, before you run off and start one of these up, you have to remember that the primary purpose of owning a business is for that business to pay you money. If it’s a profitable side gig or a business that can meet your salary needs and has extra profit, then you can incorporate one of these tax-advantaged retirement vehicles.

The Simplified Employee Pension IRA (SEP). The SEP is another form of an IRA, but it does not have the contribution limitations that a standard IRA has. In 2020, the maximum amount that you can contribute to a SEP is the lesser of 25% of your compensation or $57,000. However, if you have employees, you must also contribute the same percentage of compensation. Thus, if your business contributes 10% of your paycheck to your SEP, it must do so for any employee who:
- Is at least 21 years of age and
- Has worked for you for 3 of the last 5 years, including seasonal and part-time employees
The Savings Incentive Match PLan for Employees IRA (SIMPLE). The SIMPLE is another form of IRA that allows either you, the employer, or the employees to make contributions. The contribution limit in 2020 for a SIMPLE is $19,500 (for people age 50 or over, the limit increases to $26,00). Contributions occur one of two ways:
- Match each employee’s salary reduction contribution on a dollar-for-dollar basis up to 3% of the employee’s compensation, or
- Make nonelective contributions of 2% of the employee’s compensation. If you choose to make nonelective contributions, you must make them for all eligible employees whether or not they make salary reduction contributions.

Companies that have 100 or fewer employees who make $5,000 or more per year are eligible. There are other rules to follow, and, in my opinion, a SIMPLE is not as simple to administer as a SEP; however, it does commit less corporate capital than a SEP does.

The 401(k) Plan. While most of the time, a 401(k) plan covers larger companies, I’m going to discuss a One-Participant 401(k) plan, often referred to as a Solo 401(k). This is a 401(k) deferred compensation plan that covers a single owner business or a business that employees you and your spouse. As the IRS puts it, in this situation, you get to wear two hats, contributing both as an employee of your own business and as the business owner. Therefore, you can make two types of contributions:
- Elective deferrals (taken from your paycheck or earned income): the lesser of 100% of your compensation or $19,500 for 2020 (or $26,000 if you’re age 50 or over)
- Employer contributions (paid by the company directly into your 401(k) plan): either
  - 25% of your compensation or
  - ½ of your self-employment tax plus contributions for yourself
- The total of contributions (employee + employer) cannot exceed $57,000 ($64,500 if you’re age 50 or over) in 2020.

You may also choose a traditional or Roth 401(k) plan. Solo 401(k) plans are relatively easy to set up and administer and offer the most flexibility as long as you don’t expand your employee base beyond you and your spouse.

There are other benefits to running your own business, such as expensing certain items like cell phones and Internet access if they are reasonable and normal in the course of the business. You can also employ your children and start IRA plans for them. If you’re at the point where you are ready to look at these options, it’s best to spend an hour or two with a qualified CPA who can guide you through the tax planning strategies that will best serve you and your family.

Entrepreneurship is not for everyone. While much of the United States’s economic success was built on the shoulders of small business owners, it’s simply not for everyone. If you’ve had that itch, though, then, by all means, go for it. Take a shot. Don’t live your life regretting the things that you wish you would have done but never got the courage to try. Do, though, approach entrepreneurship wisely and cautiously and work in a manner that improves your chances of turning a startup into a long-term success for you and your family.

We’ve taken a look at a broad range of money topics that affect your and your family’s life. In our final article in this series, we’ll tie everything back together.

Real Options Are Fine, Thanks!

Build Your Business to Finance Your Apocalypse Fund

Starting Your Own Business May Make You Happier

Your Business is Always for Sale

Humility in Business

Why My Alpha Bias is Towards Entrepreneurship

http://www.businessnewsdaily.com/3070-entrepreneurial-experience-work.html

http://www.sba.gov/sites/default/files/sbfaq.pdf

http://www.irs.gov/taxtopics/tc762.html

http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

The final article in this series is “Tying It All Together.”

Author Profile

John Davis

John Davis is a nationally recognized expert on credit reporting, credit scoring, and identity theft. He has written four books about his expertise in the field and has been featured extensively in numerous media outlets such as The Wall Street Journal, The Washington Post, CNN, CBS News, CNBC, Fox Business, and many more. With over 20 years of experience helping consumers understand their credit and identity protection rights, John is passionate about empowering people to take control of their finances. He works with financial institutions to develop consumer-friendly policies that promote financial literacy and responsible borrowing habits.