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Financial Inclusion and Financial
Education----Japan’s Experience and Its Lessons to Asian Countries
Naoyuki Yoshino
Professor of Economics, Keio University
Dean, ADBI
2014 March 20
Cash and Deposits:
567
Insurance and Pension Funds:
1049
Securities: 782
Stocks: 1170
Others: 147 USA
Total: 3715
Cash and Deposits:
792
Insurance and
Pension Funds: 399
Securities: 92
Stocks: 87 Others: 58
Japan
Total: 1428
dash and Deposits:
221 Insurance
and Pension Funds:
189
Securities: 103
Stocks: 44 Others: 5
Germany
Total： 562
* The size of each pie chart shows the total amount of personal-
sector financial assets
Source: Yoshino & Kaji (2013) Hometown Investment Trust Funds, Springer
[2010, Trillion yen]
February 26, 2014
Households’ Asset Allocation in Japan (1)
“In Japan, cash and deposits are nearly 60% of assets managed.
The amount of marketable securities and shares is extremely small.”
2
Households’ Asset Allocation in Japan
Source: Bank of Japan February 26, 2014 3 JFSA
Around 80％ of households financial assets go to safe assets.
Currency and Deposits
Insurance
Pension reserves
Risky
Assets
3
Development of Financial Education in Japan
4
Around 50% choose financial institutions for safety, not for high rate of return.
Source: “Public Opinion Survey on Household Financial Assets and Liabilities (2013),” Bank of Japan.
Reasons behind customers’ choice of financial institution
Others
Simple Financial Products
Easy withdrawal and easy to make deposits
Easy to change to cash (Liquidity)
Expected High Rate of Return
High Rate of Return
Principal Guaranteed
Reliability and Safety of Financial Institution
4
Post Office Network 24500 branches Life Insurance, Sales Ladies (widows)
1884 Hisoka Maejima introduced postal savings (UK)
Widows of WWII, Sales ladies for life insurance
Nationwide network of post office (Deposit, Insurance)
Children (School savings)
High Savings rate of Japan 24% (1974)
(i) Population growth, number of children
(ii) Economic growth, income growth
(iii) to purchase housing, target wealth hypothesis 5
Households’ Savings Ratio
6
Source: Yoshino & Kaji (2013) Hometown
Investment Trust Funds, Springer
(Dividends & Interest receipt) / (Income)
Germany
UK
USA France
“Japanese are engaging in
investment, but the fact is that
their earnings as a
percentage of income are the
lowest in the OECD.”
Japan
Need for a change in the way of thinking (from saving to investment) For a long time, Japanese were taught to work harder, rather than to think about
investment. There has been education at home, schools and work places that
values hard earned money while easy money was considered unworthy.
6
8 JFSA
Japan’s Aging Population (1) ～Challenges for younger generations in the future～
(Millions)
140
120
100
80
60
40
20
0
8 Source: Ministry of Internal Affairs and Communications.
Population structure of Japan
Financial Assets by Age
Deposits Insurance Securities Others Total
20years 266 26 40 10 342
30years 298 122 77 40 537
40years 355 241 85 62 743
50years 533 344 126 65 1068
60years 811 409 276 43 1539
70years 1035 333 287 52 1707
9
Financial Education of Japan
1, Secondary School and High School
taught in the courses of “Geography and History”
Many teachers are not graduated from economics
2, Financial education in Japan’s primary school
are taught at “Home making courses”.
3, Very few hours are allocated to financial education
4, It is regarded as a shame to make money
by financial investments.
5, Retiree from financial institutions could teach
financial economics to pupils. 10
11
～Based on “Report of Study Group on Financial Education”(2013)～
Development of Financial Education in Japan
Financial literacy that should be attained (1) Emphasis on behavioral aspects (2) Common minimum level of financial literacy to be attained
4 categories with 15 items ← Shared it among related parties and implement educational activities focusing on such minimum requirements (3) Establishment of standards for systematic educational content Establish more detailed standards, formulated in a systematic
fashion, for the content of educational content by age and category
Recipients of financial education: Greater focus on working adults and senior citizens as well as
students
11
(Making a habit of proper income/expenditure
management (eliminating debts and staying in the
black)
Articulating life plans and understanding the need to
secure the funds required for life plans
Making a habit of assuming a fundamentally careful
attitude toward contracts
Making a habit of confirming the reliability of
information sources and contract counterparties
Understanding that Internet transactions are
convenient but require some precautions different
from face-to-face transactions
[Common to all categories of finance]
Understanding key concepts constituting the
foundations of financial education (interest (simple
interest, compound interest), inflation, deflation,
exchange rates, risk-return, etc.), and the
selection/use of financial products suited to financial
and economic circumstances
Understanding the importance of ascertaining the
actual cost (price) of a transaction
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Common Minimum Level of Financial Literacy to be Attained (4 categories)
1. Family budget management
2. Life planning
3. Understanding of financial knowledge and financial/economic circumstances, and selection/use of appropriate financial products
[Knowledge of the basics of financial transactions]
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
Understanding for which contingencies (death, illness,
fire, etc.) one should seek insurance coverage
Understanding the amount of economic security required
should a covered contingency occur
Understanding basic precautions when arranging a home
loan
① Importance of setting a reasonable loan limit and
putting together a repayment plan
② Importance of preparing for the possibility of
circumstances that could make repayment difficult
Making a habit of avoiding thoughtless/reckless use of
credit cards and credit card loans
Understanding that seeking higher returns will entail
assuming higher risks, although risk tolerance varies
from person to person
Understanding the effectiveness of diversification in
wealth building (diversifying investment assets and
investment start times)
Understanding the effectiveness of long-term
investments in building wealth
Understanding the importance of appropriately
employing outside experts when selecting/using financial
products
[Insurance products]
[Loans/credit]
[Wealth-building products]
4. Appropriate use of outside expertise
12
Financial intermediaries • Banks • Broker-dealers • Insurance
companies
• Asset managers • Exchanges
JFSA
Inspection Supervision
Investment
Debt Equity
Financial education
Household
Senior people Working people -junior workers -senior workers University Students Elementary, junior and high school students
SMEs, Large companies
Deposit, etc.
Direct investment
Consumer Affairs Agency
Collaboration Collaboration
① Ensure financial stability ② Protect depositors ③ Facilitate financing
Enterprises
BOJ
CCFCI Central Council for Financial Services
Information
Associations
Financial Education Scheme of Japan
Ministry of Education
Schools
“Committee for the Promotion of Financial Education” 13
Fees and Commissions of Distributors
1Maximize Fee and Commissions (Distributors)
2Trust Fees & Commissions= α（Principal＋Dividend)
Investors
Distri- butors
Banks Securities’ companies
Asset Manage
ment Company
Trust Fees and Commissions
MAX Return
14
Pension Funds’ Asset Allocation in Japan Long-term Investment & Self Responsibility １、Lack of long term asset management
rotates every 2 -3 years
Lack of corporate bond market
2, Life Insurance and Pension funds
Defined Benefits of Japanese Public Pension
few ratio of 401 K
Self Responsibility for Asset Allocation
3, Mainly Invest into Government Bonds
Safety and Principal Guaranteed 15
Compensation & Bonus System of Japan Conservative Asset Management
１、Even if earnings would be very high
bonus is small
２、Fail in Asset management compared with others
Criticized
３、If everybody performs poorly, no punishment
Avoid Risks
Refer to Benchmark
Does not seek for higher rate of return
4, Performance based salary US case 16
17
Households’ Borrowings in Japan
Housing Loan
Auto Loan
Education Loan
Number of Households’ Default
18
（件数）
240,000
220,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0 1990年 1992年 1994年 1996年 1998年 2000年 2002年 2004年 2006年 2008年 2010年 1986年 1988年
1991年 1993年 1995年 1997年 1999年 2001年 2003年 2005年 2007年 2009年 1985年 1987年 1989年
New Law – Microcredit Regulation consumer education
1, Total Amount of Borrowing < 1/3 of Income
2, Ceiling Interest Rate = 20%
more than 100% 29% 20%
3, Borrowers Information
Aggregated total individual borrowings
4, Paper examination to be a lender
5, Minimum capital requirement
6, Consumer complaints and advices 19
Hometown Investment Trust Funds Regional financing to Riskier Borrowers
1, Bank Loans to relatively safer borrower
2, Hometown Investment Trust Funds to riskier SME
E-Finance, E-Fund
Banking
Account
Hometown
Trust
Funds
Riskier Borrowers
Investors
Depositors
Safer projects
Banking
Account
20
21
22
23
Donation and Investment to community
24
Investors Community Type Infrastructure Wind power Generator Funds Japanese Wine Fund SME Hometown Trust Fund Local Airport Agricultural Sector
Large Projects and Professional Investors Pension Funds Insurance companies Mutual Funds
25
26
SMEs in China (Red Mark is SMEs’ share)
27
28
Credit Guarantee and SME database
SME in Japan = 4 accounts
1, Account to show Bankers
2, Account to show Tax authority
3, Account of his own
4, Account to show to his wife
29
SMEs (14.4million
data)
Defaults
(1.7million
data)
Financial
Institutions
200 Regional Banks
Credit Associations
Credit Cooperatives
Government Banks
Central Bank
Credit Guarantee
Corporations (Collect Data of SMEs)
52
1, Government Support
2, Reliability
3, Security of Information
CRD
SME Data base (CRD Data base)
30
CRD database for SMEs 1, Huge number of SME database
2, Nationwide balanced data
3, Default risk ratio can be computed
4, Continuous improvement of default estimates
5, CRD is a private company
6, Venture capital market is not easy to develop in Asian countries
31
Financial Education for SMEs
1, Keep books every day
2, cash flow of his business
3, long term perspectives
4, can compare with other region
5, Even large banks use CRD data
6, Banks can collect their own data
7, CRD data is nationwide and unbiased data
32
Early Warning Macroeconomics Indicators
1, Monetary Policy
Interest rate
Growth rate of money supply
2, Bank Loans to real estate and housing sector
3, Growth rate of bank loans / Economic growth rate
4, Housing affordability (Housing Price / Income)
5, Increasing share of Unsophisticated individuals
6. Increase in turn over of stock transaction
33
NISA is an appropriate arrangement for reduction of risks associated with investment through diversification and medium to long-term holding
2014 2015 2016 2017 2018 2019 2020 2021 …
…
1 mill. JPY
1 mill. JPY
1 mil. JPY
(1) Investment of 1 million JPY every year (diversification in investment period)
sale of assets
(2) Dividends and capital gains are tax free for five years, but if assets are sold before that period ends, the tax free benefit cannot be reused again for this 5-year facility (appropriate for medium to long-term asset holding)
2014
2015
2016
…
NISA (Nippon Individual Savings Account)
16
35
References
Revankar N. and Yoshino, N., (2008) “An Empirical Analysis of
Japanese Banking Behavior in a Period of Financial Instability,”
Keio Economic Studies, Vol.45 No.1. Yoshino, Naoyuki and Tomohiro Hirano (2011) “Pro-cyclicality of the Basel Capital Requirement Ratio and Its Impact on Banks ”Asian Economic Papers, MIT Press, Vol.10,No.2. Yoshino, Naoyuki and Tomohiro Hirano (2013) “Counter-cyclical Buffer of the Basel Capital requirement and its empirical Analysis”, IMF, Current Development in Monetary and Financial Law, 6, Restorering Financial Stability, International Monetary Fund, Washington DC. Yoshino, N.,(2011) “Growing Budget Deficits and Sustainability: Why is Japan still sustainable ?” APEC, SME Economic Crisis Monitor, July-2011 Issue, 5-6. McNelis Paul and N. Yoshino (2012), “Macroeconomic Volatility Under High Accumulation of Government Debt: Lessons from Japan” Advances in Complex Systems 2012 Yoshino, N. and T. Mizoguchi (2013) “Changes in flow of funds of Japan and fiscal policy rule”, Public Policy Review, January 2013.
36
Yoshino, Suzuki, Maehara and Abe (2009) Development of Corporate Credit Information Database and Credit Guarantee System, ASEAN Secretariat, Feb. 2009. Yoshino, N. (2010) “Financing Transport Infrastructure Development in Southeast Asia” OECD, Southeast Asian Economic Outlook, 2010, Nov., Chapter 6, OECD, Paris. Yoshino N. (2012) “The Global Imbalance and the Development of Capital Flows among Asian Countries”, OECD Journal: Financial Market Trends, Volume 1, 2012 Yoshino N. Kaji, S. and Asonuma T. (2012) “Choices of Optimal Monetary Policy Instruments Under the Floating and the Basket-Peg Regimes”, Singapore Economic Review, December 2012. Yoshino N. Kaji, S. (2013) Hometown Investment Trust Funds, Springer, March 2013
