Japan is taking a flying leap of faith, betting on personal financial literacy to fix a problem that government could not despite spending trillions of dollars to do so.
The nation has a peculiar issue, one that individuals in much of Europe and the U.S. might find difficult to understand. The Japanese people save too much, which doesn’t sound like a problem at all but in the extreme has negative ramifications. Their penchant for pinching pennies–and not spending–has kept the nation’s economy in a funk for two generations.
Making matters worse, Japanese people tend to save in low-yielding accounts. Less than a third have ever owned stocks, according to a Bank of Japan study this summer, translated into English in the fall and first reported in the U.S. on RightAboutMoney.com. Individuals hold more than half the nation’s $15 trillion in financial assets in cash or savings deposits. That compares to just 15% of financial assets held in such low-return accounts in the U.S.
This risk-averse society has struggled with bouts of deflation for decades, defying the government’s long-running stimulus program designed to lift prices and investment, and get the economy moving again. Now officials are hoping a sweeping new financial education program encourages the masses to put their savings hoard to better use.
Coaxing and incentives have not worked. Maybe education will. “Financial education is important from the perspective of shifting funds out of savings into asset management,” Noriaki Kawamura, director of the Central Council for Financial Services Information, a body administered by the Bank of Japan that promotes financial literacy, told Reuters.
The central bank is now organizing free financial seminars and encouraging other institutions to do the same in order to improve individuals’ financial understanding. In November, local financial firms conducted a series of seminars organized by the BOJ’s Council to help households prepare for retirement and invest wisely. They also began promoting financial education at local universities.
As with efforts to raise personal financial literacy in many countries, this one is meeting with resistance. Critics in Japan ask: Can this risk-averse culture really change? Will lessons in diversification and asset allocation and long-term thinking really move dyed-in-the-wool savers to seek higher returns?
Nations around the world have been counting on financial education to solve their retirement savings and other financial problems. Since the financial crisis, dozens have adopted formal national strategies for financial literacy.
So far, there is only limited evidence that such programs lead to meaningful behavioral change. But this global movement is only a decade old. The Bank of Japan knows one thing: nothing else has worked. They are taking on faith that, longer term, financial education will prove effective at shoring up retirement accounts and stimulating investment and growth.