After Going All-In on Financial Education, Japan has Lift Off

By Dan Kadlec

August 30, 2017

Financial literacy brings liftoff in Japan

It would be foolish to believe that Japan’s bet on financial education is paying off so quickly. Yet here we are: less than a year since a sweeping effort began to educate this nation of penny pinchers about the virtues of wise spending and investment, the stock market is booming and economic growth has surged.

The benchmark Nikkei 225 stock market index is up 25% since last fall. Japan logged its strongest quarter in more than two years the three months ending June 30, when GDP rose at an annualized rate of 4%. Economists expect growth to level off but remain north of 2% for the foreseeable future—at long last shedding the cloud of deflation that has covered this land for generations.

Can this really be the fruit of a determined national effort to educate individuals about personal money management? Well, the timing…

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…fits the storyline. Last summer, the Bank of Japan unveiled a landmark financial literacy survey detailing the money-related failings of Japanese citizens. The BOJ used the findings as a launch pad for a federal awareness campaign and a highly coordinated program to boost financial literacy.

Economists generally do not credit this program for the economic lift off. They cite surging markets globally and note that business conditions in much of the world have been favorable during the period. Growth just clocked in at 3% in the U.S., best in a couple years. Japan is just tagging along, they argue.

And let’s face it: improving financial literacy is a long-term game with long-term benefits. Japan’s new financial education initiatives, which are run through financial institutions and universities nationwide, could not have worked that fast. Could they?

Probably not. At least not in the classic sense. Yet it’s hard to imagine that after two-plus decades of economic stagnation individuals just woke up last year and decided to spend and invest. Certainly, a global bull market can’t explain why Japan stocks have registered twice the gains as those in the U.S.

Maybe the sobering findings in the survey and resulting educational programs played a role by calling attention to a festering issue and generating a sense of urgency. The survey might have been the  match that ignited the bonfire.

The survey, first reported in the U.S. by Right About Money last fall, showed the extent to which Japanese people tend to over save in low-yielding accounts and shun the stock market, depriving their economy of capital and fostering a deflationary environment. The BOJ used the survey to highlight the value of financial education, noting that those who receive financial education are more likely to seek financial and economic information and take greater near-term risks for greater long-term rewards, among other things.

This all got a lot of play in Japan and lifted the issue into the public consciousness. Sometimes all it takes is a flicker to start a blaze, and it might be that the BOJ commitment to financial education provided that spark.

Low interest rates and other incentives for the Japanese people to borrow, spend and invest failed to get the economy moving for nearly three decades. Last year, policymakers decided to give financial education a try—and now something seems to be working.

Deserved or not, policymakers should take a victory lap and double down on their commitment so that this budding prosperity leads to even more prosperity, as more individuals act more responsibly with their income and savings.

More on financial literacy in Japan:

How a Landmark Japanese Study Will Boost Financial Education

Japan’s Leap of Faith with Financial Education

 

Posted in International on August, 2017