Advice from a Neutral Standpoint is Important for Improving Financial Literacy

YAMORI Nobuyoshi
Faculty Fellow, RIETI

The progress of financial liberalization and digitization has greatly increased the number and variety of financial products available, forcing people to make many more financial decisions. On the other hand, an increasing number of people believe that it is difficult to finance retirement with public pensions alone and feel the need to create their own retirement funds.

In reality, however, the majority of household financial assets in Japan are held in cash and deposits that receive little interest. According to a nationwide survey on securities investment in FY2021 by the Japan Securities Dealers Association, the most frequently cited reason for not owning stocks was that "I am not interested in stocks," chosen by 55.1% of respondents, followed by 27.2% for the reason that "I do not yet have sufficient knowledge." Furthermore, 54.5% of those who only hold deposits saw securities investment as "difficult." The survey indicates that one of the reasons for the low participation rate in investment in securities is a lack of financial knowledge.

What is the level of financial knowledge of the Japanese people? The Central Committee for Financial Information has conducted a financial literacy survey every three years since 2016. The percentage of correct answers to the 25 questions in the survey has remained constant, at 55.6% in 2016, 56.6% in 2019, and 55.7% in 2022. No improvement has been seen. The level of financial knowledge in Japan is lower than in major Western countries.

However, financial literacy is not simply a measure of financial knowledge. The Organization for Economic Cooperation and Development (OECD) defines financial literacy as "a combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing."

More specifically, the Financial Services Agency’s Study Group on Financial Education defines "the minimum level of financial literacy" as covering four categories: "family budget management" to grasp family income and expenditures, "life planning" to understand the future need for funds, "understanding of financial knowledge and financial/economic circumstances, and selection/use of appropriate financial products," and "appropriate use of outside expertise."


What can be done to increase the financial literacy of the people?

Here, I would like to focus on young people. In general, young people have lower financial literacy. This means that they are at a higher risk of failure in obtaining necessary insurance, in planning for the repayment of loans, and of being the victims of financial fraud early in their careers.

In order to avoid such situations, it is effective to enhance young peoples’ financial and economic education at school before they enter adulthood. Unfortunately, financial and economic education at school has never been sufficient. According to the abovementioned financial literacy survey, the percentage of people who identify themselves as having received any financial education was limited to 7.1% in 2022.

Conceivable countermeasures include the following:

The first is to properly incorporate financial education into the school curriculum. The most important development in this regard is the emphasis put on financial and economic education in the new curriculum guidelines that were introduced at high schools in FY2022. In high school home economics, for instance, teachers are requested to "discuss the characteristics (advantages and disadvantages) of basic financial products such as deposits, private insurance, stocks, bonds, and investment trusts, as well as the perspective of asset formation," and "introduce representative cases of sales credit and consumer finance."

However, it is difficult to increase the number of class hours for financial and economic education. Therefore, cross-subject initiatives can be considered. The Study Group on the Promotion of Financial and Economic Education (chaired by Naoyuki Yoshino, a professor emeritus at Keio University), of which I am a member, investigated the actual situation of financial and economic education overseas.

According to a survey by Hiromi kawaguchi, an associate professor at Hiroshima University, the United Kingdom positions financial mathematics as one form of applied mathematics to enable students to understand the financial system. The United States, Australia, and Singapore also deal with finance in mathematics. A challenge for Japan is to develop a system for teaching finance in mathematics or informatics classes.

The second is providing support to teachers tailored to the actual situation. In a poll of 2,536 teachers of junior high school social studies, technology, and home economics conducted by the Study Group on the Promotion of Financial and Economic Education in 2022, the majority of the teachers pointed out that "teaching focuses on explaining terms and systems, making it difficult to feel how concepts are connected with real life."

This means that teachers share an awareness that students should not only gain knowledge but also reflect knowledge in their actions. The Central Committee for Financial Information and other organizations have published excellent supplementary materials and examples of educational practices for using the materials, indicating that such best practices may be used for school education.

In the poll, about half of the responding teachers pointed out that their lack of specialized knowledge makes it difficult for them to handle financial and economic education (see the figure below). In such cases, collaboration with outside experts is conceivable. The new curriculum guidelines call for efforts to devise measures, such as the utilization of outside human resources. Fortunately, financial industry groups and others are willing to provide school classes, paving the way for teachers to cooperate with outside experts.

Difficulties in handling financial and economic education at school
Difficulties in handling financial and economic education at school
Note: Up to three answers are acceptable
Source: Study Group on the Promotion of Financial and Economic Education, "Fact-finding Survey Report on Financial and Economic Education at Junior High School (Teachers and Students)" (October 2022)

In addition to these concerns, it is important to secure the quality of the classes provided by outside experts in order to ensure that they do not simply become advertisement sessions for the experts’ products. I hope that the Organization for the Promotion of Financial and Economic Education, which is expected to be established in 2024 as a new licensed corporation responsible for financial education, will play an important role in this.

If those who receive financial education at school become parents, they may provide their family with financial and economic education. According to the abovementioned financial literacy survey, only about 25% of young people aged 18 to 29 have received financial education at home.

If parents teach their children basic financial knowledge through actual family budget management, those children will become familiar with finance from an early age, contributing to forming financial literacy.


Finally, I would like to emphasize the importance of gaining financial literacy by using neutral institutions as information sources for the purpose of making major financial life decisions and before engaging in major financial transactions.

Unfortunately, the importance of consulting with experts on financial matters is largely not recognized by society. This can be seen in a poll of 2,700 people that I conducted in cooperation with Hitoe Ueyama, a professor at Nagoya Gakuin University, in 2016. Of the respondents, only 3.2% were willing to receive advice from experts on overall life planning when fees are required, 36.6% were willing to do so for free, and 23.7% were not willing to do so even when the services are provided for free.

This may be for various reasons. Perhaps people have concerns about privacy issues and the attitudes of experts, or lack knowledge about who to consult with and what topics to seek consultations regarding. A poll of 3,000 respondents I conducted in 2018 in cooperation with Professor Ueyama (mentioned previously) and Mitsuyoshi Yanagihara, a professor at Nagoya University, found that people with low financial literacy fail to consult experts when they are in financial trouble, indicating that there is a significant risk that individuals fail to sufficiently respond to troubles that arise.

It has been established that it is effective to publicize consultation opportunities that are locally available or available online and to widely disseminate cases where consultations have led to resolving real-life problems. It is also necessary to deepen discussions on the competence and neutrality of advisers. I hope that the Organization for the Promotion of Financial and Economic Education will play a key role in this regard as well.

>> Original text in Japanese
* Translated by RIETI.

August 10, 2023 Nihon Keizai Shimbun

September 28, 2023