Solutions to Improve Financial Literacy andRoles of Financial Advisors in Japan

Kyushu University
Graduate School of Economics
The Department of Business and Technology Management

Takahiro Uchiyama

TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION ...................................................................................... 1
1.1 Purpose and Background ....................................................................................... 2
1.2 Current Problems ................................................................................................... 4
1.3 Objective of the Research....................................................................................... 6
1.4 Definition of Financial Literacy ............................................................................ 7
1.5 Definition of Financial Advisor ............................................................................. 8
CHAPTER 2 LEVEL OF FINANCIAL LITERACY..................................................... 10
2.1 The Financial Literacy Survey ............................................................................ 10
2.2 Previous Studies ................................................................................................... 10
2.3 Outline of Financial Literacy ............................................................................... 11
2.4 Cross-countries Comparison ................................................................................ 13
2.5 Summary ............................................................................................................... 19
CHAPTER 3 ANALYSIS OF FINANCIAL LITERACY .............................................. 21
3.1 Methodology .......................................................................................................... 21
3.2 Comparison and Analysis among Japanese People ........................................... 21
3.2.1 The Difference of Generation about Financial Literacy ............................. 21
3.2.2 Relationship between Life Insurance and Financial Literacy ................... 25
3.2.3 Investment Behavior by Gender................................................................... 31
3.3 Findings ................................................................................................................ 34
CHAPTER 4 ROLES OF FINANCIAL ADVISORS .................................................... 37
4.1 Current Position of Financial Advisors .............................................................. 37
4.2 Questionnaire ....................................................................................................... 38
4.3 The Perceptions of Financial Advisors................................................................ 38
4.4 Roles of Financial Advisors in Improving Financial Literacy........................... 44
4.4.1 Satisfaction Mirror ........................................................................................ 44
4.4.2 Activities and events for customers to improve financial literacy ............. 46
4.4.3 Financial Advice Map for Financial Literacy Map ...................................... 47
4-5 Summary............................................................................................................... 48
CHAPTER 5 CONCLUSIONS ...................................................................................... 49
5.1 Solutions................................................................................................................ 49
5.2 Implications .......................................................................................................... 50
5.3 Future Challenges ................................................................................................ 51
APPENDICIES ........................................................................................................... 52
REFERENCES ............................................................................................................... 60

1

CHAPTER 1 INTRODUCTION
1.1 Purpose and Background
This study aims to explore Japanese people's financial literacy (knowledge and judgment ofmoney) in detail and search for ways in which it can be further developed. It is said thatJapanese people have lower financial literacy than people in many other countries. In 2014,
investigations conducted by S&P Global, a well-known worldwide ranking organization,
showed that in terms of financial literacy, Japan was ranked 38th out of 144 countries. Amongdeveloped countries, Japan had one of the lowest rankings (Figure 1-1). According to the S&P
Global investigations, more than half of Japanese people do not have sufficient financial
literacy. I introduce questions that measure four fundamental concepts related to literacy at theend of this study.
Figure 1-1 Percent of adults who are financially literate in advanced countries
80%

68%

70%
60%

67%

66%
57%

52%

50%

43%

37%

40%
30%
20%
10%
0%
Japan

CanadaFrance

Italy

UnitedKingdom

UnitedStatesGermany[Source] Financial Literacy around the World: INSIGHTS FROM THE S&P GLOBAL FINLITURVEYDistinctive features of Japanese personal financial assets, such as too much emphasis on
savings and life insurance, may account for low financial literacy.
Furthermore, this low level of financial literacy may affect social issues in Japan,
including child poverty1, the increase in the number of livelihood protection recipients2, banktransfer fraud3, etc.
1

The poverty rate of children is 13.9%, among the households with children, the proportion of one
household with adults is 50.8% by the web site of Ministry of Health, Labour and Welfar.
(http://www.mhlw.go.jp/toukei/saikin/hw/k-tyosa/k-tyosa16/dl/03.pdf)
2
The number of people receiving welfare protection is 2,141,811 as of February 2017. 65 years oldpeople account for 45.4 % by the web site of Ministry of Health, Labour and Welfar.
(http://www.mhlw.go.jp/file/05-Shingikai-12601000-SeisakutoukatsukanSanjikanshitsu_Shakaihoshoutantou/0000164401.pdf)
3
The number of bank transfer fraud was 13,605 in 2016 by the web site of National Policy Agency

2

Currently, Japan has one of the highest life expectancies of any country in the world4,
and the need to prepare for a long life is becoming increasingly important. Under the present
circumstances, many Japanese people are worried about their futures, not knowing whether
they will be able to survive in old age without a paycheck, living on pensions alone. As far as
the younger generations are concerned, the number of people who do not want to get marriedor have children is increasing now in part because of this economic anxiety.
Mr. Ochi, the Deputy Minister for Finance, pointed out on February 3, 2017 that withrespect to household financial assets in Japan, “The proportion of cash and savings accounts
for 52%, 900 trillion out of 1,700 trillion. It is a relatively small return from them. As aging insociety progresses, significant issues are how to maintain living funds for old age and how tomanage the building-up of assets by workers.”
Reflecting these situations, authorities such as the Bank of Japan and the Financial
Services Agency have been committed to leading the people to shift from savings toinvestments while enhancing individual financial literacy. The introduction and prevalence ofactivities around “NISA”5 are a typical example.
Furthermore, nationals are increasingly required to make voluntary efforts because of
the spread of defined contribution pensions. Defined contribution pensions have two types:
the corporate and individual. The individual-type, referred to as “iDeco,”6 was changed in2017 and the scope of people eligible to participate was expanded. At present, the Minister of
Health Labour and Welfare and many financial institutions involved in defined contribution
services emphasize the income tax incentive for participants in the pension system. Its main
purpose is to require that people actually participate in the pension system. In fact, participants
tend to focus on tax incentives without deeply thinking about the allocation of pension wealth,as shown in Figure 1-2. In the pension system, participants are required to allocate theirpension wealth. They must choose a mutual fund (some funds) out of individually listed funds.
According to an investigation conducted by the 401k Educational Society, the understandingof participants when making these decisions tends not to be very high (Figure 1-2).
The investigation also reveals that a lot of participants choose the safest funds (i.e., withprincipal guaranteed). The rate of participants choosing the safest funds was 61.4 %, on
average.

(https://www.npa.go.jp/safetylife/seianki31/higaijoukyou.html)
According to the World Health Statistics 2016, Japan’s life expectancy years is 83.7 years and Japanis the highest country in the world.
(http://www.who.int/gho/publications/world_health_statistics/2016/en/)
5 NISA stands for Nippon Individual Savings Account. It is a system that exempts taxation on
dividend and capital gain against investment in stocks and mutual funds in the certain investment
amount and terms. Japan introduced the rule referencing similar tax rule in the U.K. in 2014.
4

6 iDeco means individual defined contribution. It was named to spread the system in 2017.

3

Figure 1-2 Participants’ understanding of financial products listed in defined contribution
39.2%
40%
30.3%
30%
20.6%
20%
10%

6.3%
1.2%

2.5%

0%
UnderstandAlmostunderstand

Neither
agree nordisagree

Do notDo notunderstand understandvery much

Others[Source] 401k Educational society in 2016

1.2 Current Problems
Defined contribution7 is a typical example of the low financial literacy of Japanese people:
participants are forced to manage their own assets; they have a lack of understanding of theselected funds; and, in general, they tend to avoid taking risks. With respect to the corporate
type8, companies generally make the decision to introduce the system, and employees mustcomply with the decision regardless of their individual opinions.
It is likely that financial literacy is indispensable, and this momentum is accelerating
nowadays. The following investigation shows that about 60% of respondents are worried about
their life after retirement, given the current circumstances (Table 1-1). Similarly, about 60%
of respondents intend to prioritize the enrichment of everyday life to make preparations for the
future (Table 1-3). In other words, decisions of respondents do not reflect their thoughts, andlow financial literacy may contribute to the gap between decisions and thoughts. In light ofthese circumstances, Japanese people might be thinking along the following lines: “Under the
low-interest rate, I want to increase my assets in some ways apart from savings, but I am afraidof investment in financial products like stocks”; or“I am not familiar with personal financial
matters, and I do not know how to start preparing for my future.” Table 1-1, 1-2, and 1-3
describe the situations clearly.
Table 1-1 Q5 Do you feel worried or anxious in your everyday life, or do you not have any
78Japan started Defined contribution in 2001.
As of August in 2016, 28,652 companies have introduced the cooperate type by Ministry of Health,Labour and Welfare.
(http://www.mhlw.go.jp/stf/seisakunitsuite/bunya/nenkin/nenkin/kyoshutsu/sekou.html)

4

worries or anxieties?
2016

2017

Yes, I feel this way

65.7%

63.1%

No, I do not feel this way

33.4%

36.4%

[Source] Public Relations Office, Cabinet Office, the Government of Japan, Overview of the Public
Opinion Survey on the Life of the People in August 2017

Table 1-2 (For 4,126 people who responded “I feel worried or anxious” to Q5)What do you feel worried or anxious about? Please select all applicable answers (M.A.).
2016

2017

About plans for my life after retirement

54.0%

53.5%

About my health

51.6%

52.1%

About the health of those in my family

42.8%

42.1%

About the outlook of my future income and assets

39.5%

39.7%

[Source] Public Relations Office, Cabinet Office, the Government of Japan, Overview of the Public
Opinion Survey on the Life of the People in August 2017

Table 1-3 Preparing for the future vs. enriching everyday life
Regarding your lifestyle, would you like to put forth effort into preparing for your future, suchas through savings and investments, or would you like to put forth effort into enriching youreveryday life and enjoying it?
2016

2017

Prepare for my future, such as through savings and investments

31.3%

32.7%

Enrich my everyday life and enjoy it

60.9%

59.6%

[Source] Public Relations Office, Cabinet Office, the Government of Japan, Overview of the Public
Opinion Survey on the Life of the People in August 2017

Likewise, another survey conducted by the Japan Institute of Life Insurance9 indicatesthat 74.1% of respondents are worried about economic preparations for old age. Furthermore,
I can understand that most people expect deposits and insurance including personal pensions(Figure 1-3). That is to say, the type of principle guarantees is mainly chosen as retirement
preparation.

9

Survey on the national survey on life insurance 2015

5

Figure 1-3 Financial products expected as retirement funds

Deposits

40.2%

life insurances

20.6%

Personal pensions

15.2%

Real Estates

14.4%

Securities

10.4%

Employee savings

49.0%

Others38.0%

nothing to expect

30.8%

I have no idea

7.6%
0%

10%

20%

30%

40%

50%

60%

[Source] Survey on the national survey on life insurance in 2015

In sum, Japanese people should seriously consider personal finances in order tomaintain their lifestyles, but they do not have the financial literacy necessary to do so.
Following from this, how can personal finance experts (financial advisors) serve ordinary
people?
While financial literacy or investment knowledge plays an important role in people’s
financial decisions, the role of financial advisors is considered to be even larger.
When financial advisors do not fully comprehend the financial literacy of theircustomers, they cannot provide these customers with the proper financial services. As a result,
their customers’ financial literacy level will not improve. A number of previous studies10 pointout that the educational system is responsible for low financial literacy in Japan. Therefore, it
is really important to develop the system preferentially. Considering factors such as an aging
society, low birth rate, and longevity in Japan, it is crucial to provide supports to address low
financial literacy. In this case, financial advisors will be expected to step in.

1.3 Objective of the ResearchConsidering this background and these problems, I frame the current research question. How
should financial advisors contribute to improvement in people’s financial literacy? This paper
examines Japanese people’s financial literacy in depth. In addition, the paper shows financial
advisors’ perceptions about the financial literacy of their customers. How much do they truly
comprehend about their customers’ financial literacy?
Thanks to approaches from two directions (i.e., customers [ordinary people] and10Previous studies are summarized chapter two.

6

financial advisors) I am able to search for the appropriate ways to improve financial literacy.
It is essential for financial advisors to take customers’ financial literacy into consideration tocomply with Fiduciary Duty,11 which is required of financial advisors in recent years. I hope
this paper will contribute to understanding about how to improve the quality of financial
services in Japan as well as understanding about how to enhance financial literacy among
Japanese people.

1.4 Definition of Financial Literacy
I would like to use the Financial Literacy Survey conducted by the Central Council for
Financial Services Information in this paper. Thus, I should clarify the definition of financial
literacy in advance. Kamiya (2017) researched theses on financial literacy and published areview paper, which lists prior studies around the world. Table 1-4 shows parts of the list.
Table 1-4 The definition of financial literacy
Capability to make informed decisions and make effective
Balatti (2007)

decisions regarding the use and operation of money in real life
situations

Kim (2001)

Fundamental knowledge required for people to survive in modern
society

Noctor, Stoney, &Capability to judge from information and decide on the use andStradling (1992)

operation of money effectively

Servon & Laestmer

Individual ability to understand and utilize concepts on finance(2008)[Source] Kamiya (2017), p. 655.

Many previous studies in addition to the above refer to knowledge, understanding,capability and ability as they apply to financial literacy. In the Financial Literacy Survey, theCentral Council for Financial Services Information defines financial literacy as consisting offinancial knowledge and financial decision-making skills. Moreover, financial knowledge canbe divided into five areas based on the Financial Literacy Map 12 : basics of financialtransactions, basics of finance and economy, insurance, loan/credit, and wealth building. I
show parts of the Financial Literacy Map at the end of this study. Employing these concepts,
11

Principles of Fiduciary Duty is a recommended set of basic fiduciary principles that financial
business operators may elect to adopt in connection with their performance of client-oriented
services (the Financial Services Agency of Japan).
12
The "Standard Learning Goals for Different Age Groups" from the "Minimum Level of Financial
Literacy That Should Be Attained" prepared by the Committee for the Promotion of Financial
Education (Secretariat: Central Council for Financial Services Information).

7this paper defines financial literacy as having two dimensions: understanding of financial
knowledge and capability of taking action with respect to personal finance. I will use the Financial
Literacy Map as a benchmark in the discussion about Japanese people’s financial literacy.

1.5 Definition of Financial Advisor
This paper defines financial advisors as existing in four settings: workers in banks, especiallysales workers interacting with customers directly; workers in life insurance companies,
primarily engaging in selling life insurance; workers in independent life insurance agencies;
and independent financial advisors such as Financial Planners 13 . Independent financial
advisors make up approximately 7% of the total number of financial advisors, according todata provided by the Association for Financial Planners14. The author is also an independent
financial advisor who has served many clients. I think that the number of people who want to
consult with independent financial advisors is gradually increasing in the past several years,
but the number is smaller than the number of people consulting with financial advisors who
operate within financial institutions. One of the reasons for this trend concerns fees. In case of
consulting with independent financial advisors, customers need to pay consultant fee.
According to Association for Financial Planners, 30% of financial advisors require 10,000JPY or
over per hour as consultation fee15. Many ordinary people feel big burden. Though I can conceiveof the relationship between clients and independent financial advisors, the paper mainly
focuses on situations in which people consult, free of charge, with financial advisors who
belong to financial institutions. Therefore, when I refer to financial advisors in this paper, I am
mainly referring to financial advisors belonging to financial institutions.
Presently, most workers in banks and insurance companies are required to obtain thequalifications to serve as a Financial Planner. Thus, those referred to as financial advisors inthis paper are those having Financial Planner qualifications or those aiming to obtain thequalifications. Sugai (2011) mentions that a “Financial Planner is an expert in personal financeand is expected to broaden financial knowledge.” Incidentally, I do not consider employees insecurities companies as financial advisors in this study. The proportion of customers
interacting with employees in securities companies is small, on the whole. According to the
National Survey on Securities Investment (N=7,000) 16, conducted by the Japan Securities
13

Financial Planner is a qualification that allows one to make life plans with a deep understanding offinance. There are two types of qualifications. One is admitted by the Ministry of Health, Labourand Welfare. The other is provided by the Japan Association for Financial Planners (nonprofit
organization).

14

Association for Financial Planners conducts investigations to understand the situations offinancial planners.
(https://www.jafp.or.jp/aim/fpshikaku/data/)

15

Estimate of consultation fee by the website of Association for Financial Planners Website(https://www.jafp.or.jp/shibu/oita/seikatsu/aboutfp/fee/)
16 The Japan Securities Dealers Association conducts the National Survey on Securities Investment

8

Dealers Association (2015), 79.5% of respondents have not had the experience of doingtransactions that involve any securities company. Besides, customers of securities companies
usually have adequate financial knowledge and investment experience.
It is likely that many salespersons in securities companies have professional
relationships with such customers. In comparison with the financial advisors I refer to, they
do not have occasions to serve ordinary people, who have low levels of financial literacy.
Because the purposes of this paper are to analyze the negative impact of low financial literacy
and to suggest how to make improvements, I excluded employees in securities companies frommy definition of financial advisors. Using a questionnaire, the author investigated how
financial advisors probe people’s degree of financial literacy. By combining the results of thequestionnaire and the Financial Literacy Survey (2016), I expect to arrive at novel conclusions.

once three years.
(http://www.jsda.or.jp/shiryo/chousa/data/index.html)

9CHAPTER 2 LEVEL OF FINANCIAL LITERACYThis chapter provides an outline for the financial literacy of not only Japanese people but also
foreigners. First, I demonstrate how low the financial literacy of Japanese people truly is andwhat areas in particular they struggle with before tackling a more detailed analysis. I will begin
chapter two by introducing the result of the Financial Literacy Survey.

2.1 The Financial Literacy Survey
In the survey, 25,000 individuals aged 18 to 79 were chosen in proportion to Japan's
demographic structure, and they answered questions about financial knowledge and financial
decision-making skills. The survey comprised 25 true/false questions in accordance with the
Financial Literacy Map, which were explained in chapter one. It has 53 items in total including
questions about respondents’ behaviors, actions, and personal characteristics, such as gender,
age, and prefecture of residence. The true/false questions were converted into scores byassigning four points to one correct answer. The scores were widely distributed from 0 to 100
points. The survey period was from February 29 to March 17, 2016, and it was conducted
online. About half of the questions were similar to those in surveys conducted by the U.S.
Financial Industry Regulatory Authority (FINRA) Investor Education Foundation and theOrganization for Economic Co-operation and Development (OECD) so that the results could
be compared (The Financial Literacy Survey, 2016). Since the survey is a substantial and highquality scale and is comparable with financial literacy scales in other countries, it provides
some of the most suitable data to analyze people’s financial literacy.

2.2 Previous Studies
Kamiya (2017) reviewed 223 papers that have been published in Japan and overseas regarding
financial, economic, and monetary literacy. His research took place in Japan in 2012 andoverseas in 2013. With respect to this research, he points out that the definitions and scales forfinancial literacy are vague and that only 35 papers show the specific items of the scale. He
mentions that the research on financial literacy has four common themes: fundamental areas,
credit and borrowing, savings and investment, and, insurance and security.
I observed that there are many papers focusing on educational systems and students’financial literacy. For example, Yamaoka et al. (2017) describe the result of a personal financetest that was conducted in high schools and universities. Also, Mandell and Klein (2009)
compared the financial literacy of students who took a personal finance course with students
who did not take the course, and they continued to observe them over time. After several years,
the researchers found some differences between those who took the course and those who did
not. However, they could not identify a meaningful positive impact from taking the course.
10

On the other hand, there is a lack of research on the role of financial advisors in
improving the financial literacy of adults, the specific advice method, and the relationshipbetween customers and financial advisors. The lack of research on financial literacy in Japanis especially obvious. It is acknowledged that there is a strong correlation between the seekingof financial advice and the highest levels of financial literacy (Calcagno and Monticone, 2013).
Also, it is meaningful to show the actual method of providing advice and the quality of therelationship between customers and financial advisors.

2.3 Outline of Financial Literacy
According to the survey which the author conducted for financial advisors, many of them do
not consider the financial literacy of Japanese people to be high (Figure 2-1).
Figure 2-1 Financial advisors’ perceptions for Japanese financial literacy(Number of answers)

High

0

Relatively Hige

15

Normal47

Relatively Low

107

Low

54
0

20

40

60

80

100

120

[Source] The questionnaire survey by the author

Regarding the following question for financial advisors, “Do men or women have higher
literacy?” I did not find a big difference (Figure 2-2).
The discussion in chapter one and the next section (2.4) show that the financial literacyof Japanese people is relatively low. Many financial advisors concur with this situation.
On the other hand, financial advisors’ perceptions about the difference between men andwomen’s financial literacy are somewhat different from the actual result.

11

Figure 2-2 Do men or women have higher literacy?
(Number of answers)

73

82

Women
Neither change

68

Men

The table 2-1 shows scores by gender and generation. Scores mean the correct answer
rates. It clearly shows that the scores of women are lower than the scores of men. Young
women’s scores, in particular, are much lower than others’ scores. Looking at the kinds ofquestions in detail, the scores for questions on basic finance, economics, and wealth building
as an important background for investing in risk assets are much lower.
Table 2-1 Scores of financial literacy survey by gender and generation(%)[Source] The Financial Literacy Survey (2016)12

In addition, the results below demonstrate that Japanese people are highly conservative
when it comes to investment in risk assets. Regarding question 6 (Q6), a rational respondents would
choose “I would invest.” Nearly 80 % of respondents, however, chose “I would not invest.”
Q6 (The Financial Literacy Survey, 2016)
Suppose that, if you invested 100,000 yen, you would either get a capital gain of 20,000 yen ora capital loss of 10,000 yen, at 50% probability. What would you do? Choose only one answer.
[Required entry]
1. I would invest 21.4 %2. I would not invest 78.6 %Regarding the results, the survey reported, “For investment with an expected return rateof 5%, 80% of the respondents answered that they would not invest, showing generally strong
Table 2-2 The result for Q6 by gender
I would invest

Rate

Men

3,761 out of 12,334

30.5%

Women

1,583 out of 12,666

12.5%[Source] The Financial Literacy Survey (2016)

loss aversion.” Furthermore, Table 2-2 shows that women are overwhelmingly represented in
the loss aversion category. The survey reported, “Loss aversion was stronger for female
respondents.” I will explore the subject of loss aversion by gender much more in chapter four.

2.4 Cross-countries Comparison
As exemplified by the OECD survey, some international organizations also conduct
investigations of financial literacy. It would be meaningful to compare the rates of correct
answers for questions by country while also examining each country’s government policy,
culture, and relevant background.
Among 14 countries that can be compared in the OECD, the ratio of correct orappropriate answers in Japan is five percent points lower than the average. Correct responses
for seven out of 11 questions are also less than average. Figure 2-2 highlights the lower
percentage of Japanese respondents who chose answers that represent desirable financial
behavior and attitude (e.g., monitoring financial affairs, considering affordability whenpurchasing something, and prioritizing future savings over consumption).

13

Figure 2-3 Financial literacy in Comparison with other OECD countries(%)
PolandNorwaySouth Africa
Armenia
Albania
Estonia
Czech
Malaysia
U.K.
Peru
Ireland
Virgin Islands
Hungary
Germany
Average
Japan

55
57
58
59
60
61
62
63
63
66
66
67
69
71
63
58
50

55

60

65

70

75

[Source] The Financial Literacy Survey (2016)

In particular, there is a big gap between Japan’s score and the average score with respect
to the monitoring of financial affairs. The percentage for Japan was less than 60%, whereas
not only economically mature countries such as Germany and the U.K. but also Poland,
Norway, Ireland, and Armenia exceeded 80% (Figure 2-3).
Q1 The Financial Literacy Survey (2016).
How much do you agree or disagree that each of the following statements applies to you
personally? Choose from the following scale of 1 to 5. Choose one answer for each item.
I keep a close personal watch on my financial affairs
Agree1(22.5%)Disagree2

3(34.9%) (30.4%)45(8.8%)(3.3%)

Shaded numbers indicate desirable financial behavior.

14

Figure 2-3 Monitoring of financial affairs in comparison with other OECD countries(%)
81

PolandNorwaySouth Africa
Armenia
Albania
Estonia
Czech
Malaysia
U.K.
Peru
Ireland
Virgin Islands
Hungary
Germany
Average
Japan

89
65
81
71
78
76
78
80
82
85
80
71
87
79
58
50

55

60

65

70

75

80

85

90

[Source] The Financial Literacy Survey (2016)

With respect to knowledge, the percentage of Japanese respondents’ correct answers on
items about the definition of inflation was overwhelmingly lower than average, and on items
about diversified investment, it was relatively lower than average. Only 61 % of Japanese
respondents chose “True” in response to the item below.
Question about inflation (The Financial Literacy Survey, 2016)
Q. 21-1 High inflation means that the cost of living is increasing rapidly(True / False / Do not know)
The Financial Literacy Survey (2016) focuses on comparisons with the U.K., Germany
and the U.S. as OECD countries. Next, I will summarize the weaknesses of Japan incomparison with these countries. Figure 2-5 shows that average scores for similar questions islower in Japan than in the U.K. and Germany. Japan’s score is inferior to others with regard to
the understanding of diversified investment.
Also, the same can be said of Figure 2-6. In this case, scores for Japan are lower thanscores for the U.S. with respect to the understanding of compound interest. Notably, Japanesepeople’s knowledge is lacking in the areas of investment and asset management with respect
to financial literacy.
15

Figure 2-5 Comparison with U.K. and Germany(%)

Knowledge(Average for five questions)
U.K.

Diversified Investment
U.K.

65

Germany

67

Japan
40

50

60

Germany

60

Japan

58

30

55

46

0

70

20

40

60

80

[Source] Financial Literacy Survey (2016)

Figure 2-6 Comparison with U.S.
(%)

Average of correct answers forfivetrue/false questions

U.S.

Compound interest

U.S.

53

Japan

Japan

46

30

40

50

75

60

70

43

0

20

40

60

80

[Source] Financial Literacy Survey (2016)

In fact, many data suggest that Japanese people are not familiar withinvestment and that they tend to avoid monetary risks, as shown below. Figure 27 shows that the proportion of risk assets in total funds circulation is extremely
low in Japan. This means that Japanese people are quite conservative regarding
asset management. Thus, the performance of assets in Japan is inevitably smaller than theother main countries. Table 2-3 shows the difference in performance in detail.

16

Table 2-3 Performance of assets in Japan, U.S., and U.K.
Transition of financial asset in household

Transition of financial asset ineconomy by investment returnhousehold economy

JAPAN

1.15

1.47

U.S.

2.32

3.11

U.K.

1.63

2.17

[Note] This figures show the outcomes as of 2015 when the point of 1995 as 1 (1997 in the UK)[Source] The Financial Services Agency17

Figure 2-7 Comparison of Japan, the US, and Europe for funds circulation

Cashes and Deposits

Bonds

Mutual Funds

33.2%

Euro Area

9.2%

StocksInsurances, Pensions

18.2%

Other

34.0%

3.2%
The United
State

13.4%

11.0%

35.8%

31.2%

6.0%
5.4%
Japan

51.5%

10.0%

28.8%

1.4%

[Note] As of March in 2017
[Source] Bank of Japan

Of course, I must consider technical problems in statistical analysis when comparing
Japan with other countries. In the case of comparisons with the U.S., there are differences inthe scope of households and the methods for capitalization, which tends to expand the gap
between risk-weighted assets ratios in Japan and the U.S. (Fukuhara, 2016). However, as also
shown in the following data, it remains the case that Japanese people tend to avoid monetaryrisks and prefer secure financial assets.
According to Japan Securities Dealers Association, over 70% of Japanese people do
not feel the need for securities investment (Table 2-4). This is equal to the proportion of those
who have never experienced securities investment or who never experienced principal loss inanother survey (Figure 2-8). Likewise, in the question (Q6) on loss aversion mentioned above,
17

Explanation documents by Financial Services Agency meeting of experts regarding stable asset
formation of households February 3, 201717

78.6% of people answered "I would not invest." From some of these results, it can be inferredthat from 70 to 80% of Japanese people are reluctant to manage their assets actively. Also, as
far as Figure 2-8 is concerned, there has been no significant change in the trend over the last
few years. The main reason for this circumstance is that Japanese people do not haveinvestment knowledge. It can be presumed that low financial literacy, then, contributes in some
way to conservative asset management (Figure 2-9).
Table 2-4 Necessity of securities investment (N=7,000)
I think it is necessary

23.7%

I do not think it is necessary

75.8%[Source] Japan Securities Dealers Association, National Survey on Securities Investment 2015

Figure 2-8 Have you ever experienced principal loss?
80%
70%
60%
50%
40%
30%
20%
10%

Experienced

Never experienced0%2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

[Source] Japan Securities Dealers Association, National Survey on Securities Investment 2015

Figure 2-9 The reason people do not purchase risk products?
I do not have the investment…

38.5%

There is a possibility of loss

38.0%

I do not take risks

33.3%

It looks like gamble
Others21.8%
2.8%

I do not have specific reasons
No answer

25.2%
0.5%

[Source] Japan Securities Dealers Association, National Survey on Securities Investment 201518

Kadoya (2016) explains that less financial assets amplify people’s anxiety in the old age in Japan.
On the other hand, in china, it has been clarified that the amount of assets does not affect people’sanxiety. In India, not being a homeowner will amplify people's anxiety. Unlike China and India, in thecase of Japan, investment will most likely alleviate people’s anxiety.
Table 2-8 shows that stocks and bonds investment can bring higher return than cash over the longterm. Thus, Japanese people should be interested in long-term investment to reduce their anxiety.

Improving financial literacy and getting out of loss aversion might have positive influence people’s
perceptions in the old age.

Table 2-8 Annualized return for each asset class
Category
Cash
Stock

Bond

Asset

Annualized return1 year

3 year

5 year10 year15 year

20 year

Cash

0.0%

0.0%

0.0%

0.1%

0.1%

0.1%

Japan stock

24.5%

10.6%

20.5%

3.7%

6.6%

3.4%

Advanced stock

22.2%

6.7%

19.6%

5.7%

8.6%

6.2%

Emerging stock

31.1%

4.7%

11.7%

1.8%

11.5%

7.3%

Japan bond

-0.4%

1.7%

2.0%

2.1%

1.7%

2.0%

Advanced bond

6.2%

-1.3%

7.7%

2.8%

4.5%

4.5%

Emerging bond

8.4%

3.7%

10.5%

7.2%

8.5%

7.9%

[Notes]Cash: Short-term interest rates
Japan stock: All of companies listed with first section of the Tokyo Stock Exchange
Advanced stock: Developed countries equities excluding Japan, 22 countries
Emerging stock: Emerging markets equities, 22 countries
Japan bond: Japanese government bonds, Government agency bonds etc
Advanced bond: Developed countries bonds excluding Japan, about 23 countries
Emerging bond: Emerging markets bonds, about 30 countries[Source] my index http://myindex.jp/

2.5 Summary
In addition to low financial literacy, the Financial Literacy Survey and other data show thatJapanese people are very conservative in the way they approach asset management. Given thissituation, the Financial Services Agency points out that the ratio of earned income to property
income is 3:1 in the U.S. versus 8:1 in Japan and that property income greatly contributes to19

U.S. household income. It is thought that policies such as tax incentives (IRA18) are the keys
to understand these situations. The Financial Services Agency believes that Japanese people
should use the asset management style in the U.S. as a reference, and the Financial Services
Agency and other financial authorities have been committed to spreading NISA and iDeco tohelp the Japanese people become more capable of performing asset management bythemselves. In this way, more and more people will accept the importance of financial literacy.
Otherwise, the lack of financial literacy will have a negative impact on future society in Japan.

18

IRA stands for Individual Retirement Agreement.

20

CHAPTER 3 ANALYSIS OF FINANCIAL LITERACYThis chapter will clarify some challenges in the area of personal finance in Japanby analyzing the results of a Financial Literacy Survey along several attributes.

3.1 Methodology
Not only the Financial Literacy Survey but also statistical analyses conducted by the Japanese
government or financial institutions show data regarding the financial literacy of Japanesepeople. Since the Financial Literacy Survey conducted on 25,000 individuals aged 18 to 79
who have been chosen in proportion to Japan’s demographic structure, it is one of the highest
quality survey with respect to personal finance in Japan. Hence, the Financial Literacy Survey
is the most suitable method in this study. The survey enables us to study differences according
to attributes such as gender, age, and prefecture of residence. Combining the result of the
Financial Literacy Survey and other data, I will attain a greater understanding.

3.2 Comparison and Analysis among Japanese People
Comparing a lot of data in the Financial Literacy Survey by attribute, I examine how the degreeof financial literacy influences an individual’s activities and perceptions. The Financial
Literacy Survey (2016) compared data by prefecture and explained that with higher financial
literacy, the fewer people encounter financial troubles. Also, the higher financial literacy
becomes, the more investment experiences people have; whereas with lower financial literacy,
the more people encounter financial trouble and the lower financial literacy is, the fewer
investment experiences people have. Regarding the relationship between financial literacy andfinancial troubles or investment experience, the survey shed light on this by analyzing the top
five and bottom five prefectures in terms of financial literacy. In a similar manner, I comparefeatures by prefecture as part of my investigation. This process would enhance understandingof the effect of financial literacy on household economic attitudes.
3.2.1 The Difference of Generation about Financial Literacy
Chapter two suggested the possibility that, in Japan, women’ financial literacy may be lower
to men’s. It was mentioned that young women, in particular, may lack financial literacy. Still,when analyzing the degree of financial literacy by generation, regardless of gender, thefinancial literacy of young people tends to be lower that of older people.
The Financial Literacy Survey has 25 questions that correspond to the Financial Literacy
Map. After analyzing responses to these questions by age group, the author picked up thequestions for which a percentage of correct answers was 15% points or lower than average by
age group. Respondents older than 40 did not have any questions under this condition.
21

Respondents in their 30s had four questions that matched this condition, and for those in the
29 years and under group, most of the questions matched the condition. I assume that a lackof knowledge and experience affected these results. The generation of people in their 30s
experiences many significant life events. These individuals need financial literacy in various
situations.
Table 3-1 Average age of marriage and childbirth
EventsAverage age<Marriage>Men

31.1 years old

Women

29.4 years old<Childbirth>First Child

30.7 years old

Second Child

32.6 years old

Third Child

33.6 years old[Source] The Ministry of Health Labor and Welfare, The Population Dynamics Survey, Marriage andchildbirth data (2016)

Figure 3-1 Average age of house purchase
Used condominium

35.6%

Used detached house

40.3%

Newly built apartment

47.0%

Single-family detachedresidence

56.6%

Custom built house

48.9%
Under 30

30s

40s

50s

60s

[Source] Survey on housing market trends in 2014

The average age of marriage and childbirth in Japan is in the early 30s (Table 3-1),
while the average age of home purchase is in the late 30s (Figure 3-1). Regarding homepurchase, average age is further categorized by type of home, but the 30s is the most common
age group for both types. At the time of childbirth, most couples will purchase educational22

endowment insurance; most people will also obtain a mortgage at the time of home purchase.
In other words, it is safe to say that the 30s are a time when it is very important to get a certain
degree of financial literacy. Therefore, I explore this generation at this time. Four questions
for which respondents in their 30s had 15% points or lower percentage points of correct
answers than the average are shown in Table 3-2.
Table 3-2 Questions with a low correct answer rate in their 30s(2) Q20. Imagine that the interest rate on your savings account was 1% per year and inflation
was 2% per year. After 1 year, how much would you be able to buy with the money in thisaccount? Choose only one answer.
(3) Q21-1 High inflation means that the cost of living is increasing rapidly. True?
(4) Q23 Which of the following is appropriate as an action to take when investing (making
deposits, etc.) or borrowing funds at a time when interest rates are rising?
1. Investing and borrowing at fixed interest rates
2. Investing at a fixed interest rate and borrowing at a floating interest rate
3. Investing at a floating interest rate and borrowing at a fixed interest rate
4. Investing and borrowing at floating interest rates
5. Don't know(5) Q31 Suppose you owe 100,000 yen on a loan and the interest rate you are charged is 20%
per year compounded annually. If you didn't pay anything off, at this interest rate, how many
years would it take for the amount you owe to double? Choose only one answer.
1. Less than 2 years
2. At least 2 years but less than 5 years
3. At least 5 years but less than 10 years
4. At least 10 years
5. Don't know
[Source] The Financial Literacy Survey in 2016

You can see that questions about inflation and interest rate corresponded to theconditions. This generation is the time to purchase education endowment insurance, and it isalso the time to contract a mortgage when purchasing a house.
Figure 3-2 displays the transitions of goods prices, education expenses, and predicted interest
from 1990 onward. The increase in education expenses is high in comparison with the increasein other items. Contrary to these trends, the predicted interest rate stopped falling after it
declined. Educational endowment insurance is basically determined by the predicted interest
rate at the time when the contract was completed. In the case of ultra-low interest rates,considering other options might be best, but among those who have children under 10 years
23old, the percentage who have educational endowment insurance is 57.2 % (goo Research19,
2013). As anticipated, choosing educational endowment insurance is popular with many
people. But when understanding about the implications of inflation increases, people willconsider other options besides educational endowment insurance.

Figure 3-2 Setting the consumer price index (all items) and education-related expenditure as 100
as of 1990 (left axis) vs. the trend in predicted interest rate (right axis)
150

All items

Expenses for education

Predicted interest

140

10
9
8

130

7
6

120

5
110

4
3

100

2

90

1

80

0
1990

1995

2000

2005

2010

2015

[Sources] The Ministry of Internal Affairs and Communications Statistics Bureau of Consumer Price
Index, Consumer price index (total) and expenses for education and Inoguchi (2013)

Figure 3-3 compares the trends in the inflation rate (annual rate) since 1980 with theage transitions of current 55-year-old people on behalf of their 50s and current 35-year-old
people on behalf of their 30s. In the case of 55-year-olds, when they were younger than 25
years of age (i.e., when they became members of society) the prices of goods declined.
Afterwards, prices increased annually at a rate of nearly 3%, around the time of marriage,
childbirth, and housing purchase. Meanwhile, people who are in their 30s now are at close to0%, excluding the effect of consumption and the consumption tax hike that increased from
5% to 8% in 2014. In other words, people who are in their 30s now have experienced almost
no increase in prices, up to today. In sum, it is known that financial literacy tends to be higher
for people with increased age, but there is likely another factor that deepens financial
understanding. This is the actual experiencing of events and incidents in the personal finance19

The result of research is indicated by the web site(https://research.nttcoms.com/database/data/001583/)

24

domain.
Figure 3-3 Inflation rate and age transitions of people who are 55 and 35 years old now
25

11

35

45

Current age
55

15

25

35

9
7
5
3
1
-1 1980

1985

1990

1995

2000

2005

2010

2015

-3

[Sources] The Ministry of Internal Affairs and Communications Statistics Bureau of Consumer Price
Index, Consumer price index (total), expenses for education

3.2.2 Relationship between Life Insurance and Financial Literacy
It is well known that the life insurance participation rate for Japanese people is extremely high.
Akita (2005) compares the multiplier of death benefits against GDP per capita by country. The
multipliers for the U.S., U.K., and Germany are approximately one, whereas for Japan, it ismore than four times. Japanese people tend to purchase life insurance excessively, and this is
one of the unique features of Japanese society.
According to the National Survey on Life Insurance (2015), which the Japan Instituteof Life Insurance conducts once every three years, 68.6% of respondents have little knowledge
about life insurance and 29.9% have sufficient knowledge (N=4,020).
Even though many Japanese people responded that they do not understand life insurance,
they still purchased life insurance excessively. Thus, I assume that low financial literacy inJapan has an influence on the scale of purchases for life insurance. Then, I frame a hypothesis
here (H1).
H1. The death benefit amount for groups with relatively high financial literacy will be below
average or around average and the death benefit amount for groups with relatively low
financial literacy will be higher than the average.
By analyzing the purchase of life insurance policies by prefecture, I highlight the effect offinancial literacy on people’s life insurance purchasing decisions in Japan. First, I listed the status25

of life insurance per family by prefecture from the data announced by the Life Insurance
Association of Japan. Then I match the data with scores from the Financial Literacy Survey, also
by prefecture. Tables 3-3 and 3-4 indicate the results.
Table 3-3 State of life insurance purchase by prefecture

Insurance policies purchased

Amount of death benefit

per household (number)per family (1,000 yen)

Hokkaido

2.55

10,632

Aomori

2.76

13,684

Iwate

2.97

14,552

Miyagi

3.39

16,707

Akita

2.94

13,642

Yamagata

4.04

19,590Fukushima

3.31

16,570Ibaraki

2.79

13,950Tochigi

3.38

18,509

Gunma

3.12

16,905

Saitama

2.82

14,794

Chiba

2.83

14,640

Tokyo

2.86

16,323Kanagawa

2.72

14,341

Niigata

3.34

18,172

Toyama4.11

21,958Ishikawa

3.67

19,110

Fukui

4.49

24,648

Yamanashi

3.19

16,705Nagano3.15

16,233Gifu

3.35

17,953

Shizuoka

3.50

17,524

Aichi

3.19

17,555Mie

3.15

16,016

Shiga

3.28

17,049

Kyoto

2.82

14,428

Osaka

2.86

15,677

Hyogo

2.81

14,403Nara

2.91

14,978Prefecture26

Wakayama

3.03

14,581

Tottori

3.76

18,732

Shimane3.15

15,310

Okayama

3.17

16,462Hiroshima

2.99

14,971

Yamaguchi

2.89

13,372Tokushima

3.42

16,942

Kagawa3.25

17,689

Ehime

2.78

13,944

Kochi

2.89

13,699Fukuoka

3.02

14,522Saga

3.69

18,019Nagasaki

3.06

14,327

Kumamoto

3.23

15,068Oita

3.09

13,671

Miyazaki

2.74

11,598Kagoshima

2.73

11,889Okinawa

1.94

8,799

Ave.

3.1

15,763[Sources] Trends for life insurance and the Financial Literacy Survey in 2016

I combined the data for life insurance and the Financial Literacy Survey to identify the fiveprefectures with the highest financial literacy as well as the five prefectures with lowest financial
literacy. Examining the relationship between the percentage of correct answers given to true/false
questions (score) in the Financial Literacy Survey (2016) and the status of life insurance, I did not
find obvious differences. Regarding number of insurance policies, the upper group has fewer
policies than the lower one. On the other hand, regarding the death benefit amount, the uppergroup’s is larger than the lower one’s. Both group averages are almost equivalent with the totalgroup average (Table 3-4). Therefore, my hypothesis (H1) did not make sense.

27

Table 3-4 Prefectures with highest and lowest scores for total financial literacy
Rank

Prefecture

Score (%)

Insurance

Amount of death(Correctpolicies

benefitanswer rate)(Number)(1,000 yen)

No. 1

Nara

60.5

2.91

14,978

No. 2

Kagawa59.4

3.25

17,689

No. 3

Kyoto

58.2

2.82

14,428

No. 4

Okayama

58.0

3.17

16,462

No. 5

Kagoshima

57.9

2.73

11,8892.98

15,089Ave.
No. 42

Tottori

52.5

3.76

18,732

42

Nagasaki

52.5

3.06

14,327

No. 44

Aomori

51.7

2.76

13,684

No. 45

Yamagata

51.6

4.04

19,590No. 46

Okinawa

51.3

1.94

8,799

No. 47

Yamanashi

48.7

3.19

16,7053.00

14,621

Ave.

[Sources] Trends for life insurance and the Financial Literacy Survey (2016)

Instead of considering the scores for the entire Financial Literacy Survey (2016), next I focusedsolely on the score denoting behaviors around the purchasing of life insurance. Because, I haveanother hypothesis (H2).

H2. The process of comparing and scrutinizing benefits during the purchasing of insurance
might lead to avoiding excessive death benefits.
In Table 3-5, I listed the prefectures belonging to the upper group and the lower group interms of the proportion of “yes” responses for the following question.

Q24. When you purchased your current life insurance, did you compare offers from different
life insurance providers?
In this way, I will confirm the importance of the process used when purchasing life
insurance.

28

Table 3-5 Prefectures with the highest and lowest proportions of “yes” responses to Q24
Rank

Prefecture

Proportion of
YES (%)

Insurance

Amount of deathpolicies

benefit(Number)(1,000 yen)

No.1

Chiba

59.5

2.83

14,640No.2

Kagoshima

59.1

2.73

11,889

No.3

Kanagawa

58.9

2.72

14,341

No.4

Miyazaki

58.6

2.74

11,598

Hokkaido

58.0

2.55

10,632

Hyogo

58.0

2.81

14,403

Nagasaki

58.0

3.06

14,327Ave.

2.78

13,119

Iwate

46.3

2.97

14,552

Kagawa46.3

3.25

17,689No. 44

Kumamoto

46.2

3.23

15,068

No. 45Tokushima

46.1

3.42

16,942

No. 46

Tottori

45.6

3.76

18,732

No. 47

Ehime

41.8

2.78

13,944Ave.

3.24

16,154

No. 5

No. 42[Sources] Trends for life insurance and the Financial Literacy Survey (2016)

For Table 3-6, in the same way as before, I listed the highest and lowest groups according
to the proportion of “yes” responses to the following question.
Q32. When you invested in a financial product most recently, did you compare it with otherfinancial institutions' products or other types of financial products in order to choose onethat was considered to be the most beneficial?
Table 3-6 Prefectures with highest and lowest proportions of “yes” responses to Q32
Rank

Prefecture

Proportion of
YES (%)

Insurance

Amount of deathpolicies

benefit(Number)(1,000 yen)

No.1

Kochi

70.0

2.89

13,699No.2

Yamaguchi

69.9

2.89

13,372

No.3

Kanagawa

69.7

2.72

14,341

No.4

Mie

69.6

3.15

16,01629

No. 5

Kagoshima

68.4

2.73

11,889Ave.

2.88

13,863

No. 43

Kumamoto

51.5

3.23

15,068

No. 44

Yamanashi

51.4

3.19

16,705

Tottori

50.0

3.76

18,732Tokushima

50.0

3.42

16,942Ishikawa

48.5

3.67

19,110Ave.

3.45

17,311

No. 45
No. 47[Sources] Trends for life insurance and the Financial Literacy Survey (2016)

In Tables 3-5 and Table 3-6, the upper group, which purchased life insurance or afinancial product after comparing it with other options, has fewer life insurance policies andlower death benefits than the lower group. However, scales of economy by prefecture might
affect outcomes. Thus, I examined the ratio of death benefits to per capita income for both theupper group and the lower one. The average ratio for all prefectures is 5.59 times.
Table 3-7 The ratio of death benefit to per capita income
With respect to Table 3-5

Ratio

Upper group

5.00

Lower group

6.20

With respect to Table 3-6Upper group

4.94

Lower group

6.52[Sources] Trends for life insurance and the Financial Literacy Survey (2016)

In the Financial Literacy Survey (2016), differences in financial literacy wereanalyzed by prefecture. I then used them as a reference to gain further understanding throughmatching life insurance data with the data of Financial Literacy Survey (2016) for eachprefecture. Although I divided the upper five and the lower five prefecture groups by the levelof financial literacy, I did not find something worth noting. However, when making thedifferent groups similar in the previous situation, by focusing on attitudes about comparing
with other options when purchasing life insurance or investing in risk assets, I found that thebottom group tends to purchase too much life insurance. Therefore, I can say my hypothesis(H2) is correct.

30

3.2.3 Investment Behavior by Gender

Next, I focus on investment behavior by gender. In general, in Japan men’s financial literacy
tends to be higher than women’s, particularly with respect to investment knowledge and active
investment. Taking the result below into account, the Financial Literacy Survey reports “Lossaversion is stronger for female respondents.”
Q6. Suppose that if you invested 100,000 yen, you would either get a capital gain of 20,000
yen or a capital loss of 10,000 yen at 50% probability. What would you do? Choose only
one answer.
Table 3-8 The result of Q6 in The Financial Literacy Survey
I would invest

Ratio

Men

3,761 out of 12,334

30.5%

Female1,583 out of 12,666

12.5%[Source] The Financial Literacy Survey

In this section, I conduct a chi-square test to analyze the difference by gender, while
framing next hypothesis.
H3. There is no difference in loss aversion between men and women.
I did a chi-square test with the following formula: observation power as n; theexpectation frequency as E; the row number as I; the column number as j; and df indicatesdegrees of freedom.
Table 3-9 The observed frequency
Men

FemaleTotal

I would invest

3,761

1,583

5,344

I would not invest

8,573

11,083

19,656

Total

12,334

12,66625,000Men

FemaleTotal

I would invest

2,637

2,707

5,344

I would not invest

9,697

9,959

19,656

Total

12,334

12,66625,000

Table 3-10 The expected frequency

31

(nij − Eij)2
Eij

Ｘ =df = (2-1)*(2-1) =1

Ｘ = 3.46985115
It is significant at the 10% significant level. Likewise, I asked the samequestion with respect to financial advisors. The result was shown in Table 3-11.
Table 3-11 Financial advisors’ respondents for the question of loss aversion
I would invest

Ratio

Men

97 out of 132

73.5%

Women

72 out of 91

79.1%[Source] The questionnaire by the author

In the case of financial advisors, there is little difference by gender. My
hypothesis is correct. Rather, the rate of women who answered “I would invest”
was higher than the rate of men. This can be interpreted in two ways. First, there
is no difference between men’s and women’s fundamental loss aversion, and it ispossible to mitigate loss aversion through certain financial experiences or throughlearning financial planning. Second, perhaps women are not actually more prone
to loss aversion but simply do not like calculations.
Table 3-12 Analysis of correct answer rate for true or false questions
Question

Correct answer rate (%)

Number

Women

Men

4

58.5

51.6

6.9

5

46.7

47.1

-0.4

12

53.2

53.2

0

13

50.4

44.8

5.6

14

68

64.3

3.7

15

74.1

70.6

3.5

16

81.4

78.9

2.5

18

60.6

71

-10.4

19

33.3

52.7

-19.4 *

Difference32

Significant
level

20

48

63.4

-15.4

21-1

52.3

69.5

-17.2 *

22

17.6

30.5

-12.9

23

38.1

50

-11.9

25

41.2

52.3

-11.1

26

52.2

49.2

3

28

57

63

-6

21-2

66.3

70.6

-4.3

30

49.4

52.3

-2.9

31

32.1

49.2

-17.1

21-3

72.7

76.9

-4.2

21-4

37.9

53.9

-16

33

40.4

44.2

-3.8

36

59.7

59.4

0.3

37

63.8

61.7

2.1

38

74.8

72.5

2.3

[Notes] Any question shaded indicates women’s score underperformed men’s score 10% points ormore. * means 10% of significant level.
[Source] The Financial Literacy Survey in 2016

The table displays the difference in average scores by gender for true or false questionsin the Financial Literacy Survey. Any question for which there was a 10% points or moredifference by gender tends to require mathematical thinking, such as questions about interest
rates, bond prices, and investment results. There are three questions that show a 15% points ormore difference between genders, and for two out of the three questions, the difference issignificant at the 10% significance level. (Since Q6 about loss aversion is not a true or false
question but a behavioral economics analysis question, the question was not listed in the above
figure.)According to PISA20, regarding gender differences for mathematical literacy scores, thescore for boys was 539 points, and for girls the score was 525 points; boys’ scores were 14
points higher than girls’. It is said that there is a statistically significant difference. For theabove two reasons, it seems necessary to reconsider the perception that women’s loss aversion
is relatively higher than men’s.
20

PISA stands for Programme for International Student Assessment. “PISA is a triennial international
survey which aims to evaluate education systems worldwide by testing the skills and knowledge of
15-year-old students.” (OECD)(http://www.oecd.org/pisa/aboutpisa)

33

As for reading comprehension in PISA, girls’ scores are higher than boys’ in all surveyparticipating countries, and the difference is statistically significant. Apparently, the same canbe said about financial literacy. Concerning true/false questions in the Financial Literacy
Survey, in the six questions below, women outperformed men (Table 3-13). Except for thequestion 13, which confirmed the three major expenditures of life, all questions required that
respondents read the sentences carefully to decide how to proceed. It can be said that questions
in which women outperformed men required reading comprehension. Although it is not asignificant difference, you can say that women demonstrate this capability for reading
comprehension in the area of financial literacy as well.
Table 3-13 Questions of higher female answer rate than men's one
Question

Correct answer rate

NumberFemale

Men

4

58.5

51.6

6.9

13

50.4

44.8

5.6

14

68

64.3

3.7

15

74.1

70.6

3.5

16

81.4

78.9

2.5

26

52.2

49.2

3

Difference

Significant
level[Source] The Financial Literacy Survey (2016)

3.3 Findings
I confirmed various features of Japanese people’s financial literacy in chapter two andanalyzed them in detail at chapter three. In this section, I summarize what I grasped as follows.
(1) The importance of comparing different options when purchasing life insurance.
Comparison between prefectures indicated comparing options will likely help people avoid
purchasing excessive life insurance.
(2) The importance of financial knowledge for people in their 30s.
Many people in their 30s experience significant life events such as purchasing houses andthe birth of children. In general, these people will not be able to experience such significant
life events many times in their lives. Hence, they should acquire financial knowledge suchas about inflation and interest rates from a long-term perspective in order to makeappropriate decisions. However, I found that people in this generation were short on
knowledge. Therefore, it is important for them to seek opportunities to acquire knowledge
before such events.
(3) The importance of management of the household economy by both husband and34wife.
I doubted the perception that women tend to demonstrate more loss aversion. But I didfind that women are not as skilled in numeracy as men. On the other hand, women tend tohave higher reading comprehension than men. As far as married couples are concerned, Iemphasize the importance of sharing management of the household economy as husband
and wife. Each can support the other, and it will be likely to lead to effective management.
Regarding household economic management in Japan, Okamoto (2015) mentions that the
proportion of management by only the wife is higher and the proportion of management byboth husband and wife is lower than in other countries (Table 3- 14).
Table 3-14 Proportion by revenue management types and its change
Husband

Wife

Both

(Japan)
1994

11.8

61.2

19.8

2002

11.5

58.1

20.3

2012

17.5

55.9

11.2

(Average on 17 countries)
1994

7.9

16.9

58.1

2002

7.3

15.5

56.2

2012

9.1

14.9

52.1

[Source] Okamoto ( 2015) p. 55

These results can be compared with those from 17 countries in the OECD. In mostcountries, the proportion of households in which economic management is by only the wife isvery small, and the proportion in which both the husband and wife share the responsibility foreconomic management is very high, which is opposite to what is observed in Japan.
With respect to Germany, Ireland U.K., Poland, South Africa and the Czech Republic,out of the 17 countries in the OECD, it is possible to compare some date in the Financial
Literacy Survey with Japan. In comparison with these countries and Japan about the rate ofmonitoring one’s own financial affairs, I obtained interesting outcome. These countries
indicate high proportion not only joint revenue management but also monitoring of financial
affairs. On contrast, both of items in Japan are low. (Table 3-15, Figure 3-4).

35

Table 3-15 Proportion of joint revenue management and monitoring of financial affairs
Country

Joint revenue management

Monitoring of financial affairs

Japan

11.2%

57.5%

Germany

65.0%

87.0%

Ireland

50.0%

85.0%

U.K.

80.0%

80.0%

Poland

70.0%

81.0%

South Africa

38.0%

65.0%

Czech

55.0%

76.0%

[Note] The proportion of joint revenue management for each country was calculated by the author
based on Okamoto (2015).
[Sources] Okamoto (2015) and The Financial Literacy Survey (2016)

Figure 3-4 Proportion of joint revenue management and monitoring of financial affairs

Monitoring of financial affairs (%)
90%

Germany

Ireland

85%
80%

Poland

75%

U.K.

Czech

70%
65%

South Africa

60%
55%
50%
0.0%

Japan
20.0%

40.0%

60.0%

80.0%

Joint revenue management (%)[Sources] Okamoto (2015) and The Financial Literacy Survey (2016)

Joint revenue management by both husband and wife will affect people’s awarenessabout and attention to money. Thus, I believe that joint management will help Japanese people
to enhance their financial literacy, in the sense that it will help improve their attention to money.
My suggestion regarding joint management of the household economy will likely bring about
positive change for financial literacy in Japan.

36

CHAPTER 4 ROLES OF FINANCIAL ADVISORSThis chapter explores the roles of financial advisors in improving people’s financial literacy.
As I discussed in chapter two, many studies point out the educational system as a problem
when it comes to financial literacy. These studies emphasize the importance of reforming the
educational system as a prerequisite for developing financial literacy. On the other hand, few
studies have been done to explore the roles of financial advisors. It might take many terms toreform the educational system, but I do not think the same applies to reforming perceptions
about financial advisors. I will suggest some ideas here.

4.1 Current Position of Financial Advisors
Because of the prevalence of internet financial services, financial advisors are forced toemphasize their existence. I describe the changing landscape for financial services from a few
decades ago until now. After the financial Big Bang in the late 1990s, the regulation offinancial services was gradually relaxed. As one example, banks could not provide insurance
services before but afterwards could provide them. Thanks to this new movement, customers
can receive a variety of financial services and products in one financial institution. Today,banks—familiar to a lot of people—arrange not only for deposits and mortgage loans but also
for mutual funds, life insurance, and medical insurance.
Furthermore, life insurance agencies, which provide various companies’ products, arenow standard. Meanwhile, the number of independent of financial advisors has been increasing.
In other words, citizens can now procure financial advice in various places and situations, andit has become easier for consumers to consult with financial advisors now than ever before.
Financial services by internet, including internet banks and life insurance, are common now.
More and more people will use these services because of the advantage that their cost is low.
In this case, a lack of financial literacy may pose difficulties.
Ideally, consumers should receive financial services from financial advisors who cangive them the appropriate advice, and consumers should choose internet financial services
after they have already developed their financial literacy. In response to the changing
landscape for financial advisors, the decision-making of customers will also change. Now,
"Fintech21" is also accelerating. Thanks to Fintech, many financial institutions are preparing
to reduce their workforce and streamline tasks to make them more efficient. Financial advisors
must enhance the importance of their existence by providing high-level consultations andappropriate advice for each customer.

21

Fintech shorten Finance and Technology.
37

4.2 Questionnaire
The author carried out an investigation for how financial advisors understand the degree ofcustomers’ financial literacy. The outline of the questionnaire is below. All results areattached in the last part of this chapter.
Table 4-1 The outline of questionnaire
Number223 (Men 132, Women 91)

Term

From July to November

Areas(Numberof

Okayama (45), Kagawa (6), Ehime (1), Hiroshima (3) Fukuoka (103),

respondents)

Saga (12), Nagasaki (18), Kumamoto (19), Kagoshima (16)Age

From 20s to 60s

Financial Institutions

A major bank
Regional banks
Major life insurance companies
Independent insurance agencies

When the author was in charge of financial seminars for financial advisors, the author
distributed the questionnaires to participants. The participants took part in the seminars to pass
the financial planning examination and to enhance their skills. Therefore, it can be said thatthey are suitable respondents. Also, the author visited financial institutions directly andrequested that some financial advisors answer the questionnaires. Since these advisors always
serve their customers in order to provide financial services and products, they are also suitable
respondents. First, I discuss the result of question number seven.

4.3 The Perceptions of Financial Advisors
In the questionnaire, I established three questions how respondents in the Financial Literacy
Survey (2016) think about. As I touched upon some time before regarding question six, whichmeasures the degree of loss aversion, only about 20% respondents answered “I would invest.”
I asked the following question to examine how financial advisors understand ordinary people’slevel of loss aversion?
Q7 in the questionnaire.
Do you think what percentage of respondents surveyed “I would invest” in the question six?
Choose only one out of four options.
(About 20% / About 40% / About 60% / About 80%)38

Out of 223 respondents, 133 choose “about 20%,” and only 29 respondents selected“about 60%” or “about 80%.” In general, it turned out that financial advisors tend to grasp theloss aversion of Japanese people. (Figure 4-1)
Figure 4 -1 The result of Q7 in the questionnaire(Number of answers)
140

133

120
100
80
61

60
40

22

20

7

0
About 20%

About 40%

About 60%

About 80%

Overall

Men

Women

Experienced

Young

About 20%

59.6%

62.9%

54.9%

60.6%

58.8%

About 40%

27.4%

24.2%

31.9%

28.4%

26.3%

About 60%

9.9%

9.8%

9.9%

6.4%

13.2%

About 80%

3.1%

3.0%

3.3%

4.6%

1.8%

[Source] The questionnaire survey by the author

In addition, each answer category is shown by gender and carrier. There are some
opinions about the proper attributes for financial consultations in practice. As examples,
younger financial advisors are better suited than senior advisors for asset management
consultations; and women’s advisors should be engaged rather than men’s advisors regarding
life insurance. Then, I explore the difference in response rates by attribute. “Experienced”
means those financial advisors who have ten years or more of experience. “Young” means theperiod of experience is less ten years.
Financial advisors comprehend that many people have an aversion to loss. There is nodifference in perception according to attribute. There seems to be no significant problem forfinancial advisors to provide financial advice and products with the current perceptions.
Next, to examine the perceptions of financial advisors about people’s understanding of
inflation, I asked the question below.
39

Q8 in the questionnaire.
What percentage of respondents surveyed do you think had a certain understanding of inflation?
Choose only one answer.
(About 20% / About 40% / About 60%/ About 80%)

The answer in the Financial Literacy Survey is 60.8%
About 60% of respondents in the Financial Literacy Survey understood inflation
correctly, but only 21 financial advisors answered “about 60%,” 116 answered “about 20%,”
and 83 answered “about 40%.” It turned out that financial advisors hardly recognized that thepeople’s degree of understanding of inflation is high.
Figure 4 -2 The result of Q8 in the questionnaire(Number of answers)
140
120

116

100

83

80
60
40
21

20

3

0
About 20%

About 40%

About 60%

About 80%

Overall

Men

Women

Experienced

Young

About 20%

52.0%

54.5%

48.4%

57.8%

46.5%

About 40%

37.2%

33.3%

42.9%

30.3%

43.9%

About 60%

9.4%

10.6%

7.7%

9.2%

9.6%

About 80%

1.3%

1.5%

1.1%

2.8%

0.0%

[Source] The questionnaire survey by the author

Since financial advisors do not overly evaluate the degree of understanding of inflation,
they carefully advise about the necessity of future inflation measures etc. In other words, manyfinancial advisors tend to underestimate their clients’ understanding. Judging from this, they
may neglect to talk about the importance of the inflation hedge because of troublesome feeling.
Especially regarding inflation, women's understanding tends to be low. Women havebetter reading comprehension than numeracy capability, and this tendency can be seen in40

financial literacy. It may be difficult for many women to explain inflation by setting the
inflation rate or interest rate or by showing the formula for a calculation. It may be a more
effective explanation to provide stories to illustrate examples, such as whether you canpurchase certain goods several years later in certain situations.
Financial advisors must keep in mind that people in their thirties do not have a thoroughunderstanding of inflation. Many of them experience important life events such as marriage,
childbirth, and housing purchase. Hence, they must make decisions about personal finance,such as about obtaining housing mortgages and purchasing educational endowment insurance.
They do not experience these events many times over the course of a lifetime and it is difficult
to expect people to understand at the very moment they are having their first experiences.
Regarding educational endowment insurance, people may think about it only once or twice ina lifetime because of the low total fertility rate in Japan.22 On the basis of these circumstances,financial advisors should give their clients multiple options so that they can think about theirlong-term financial plan.
The next issue is about financial advisors’ perception of people’s preparation for
emergency. I asked the question below.
Q9 in the questionnaire
What percentage of respondents surveyed do you think have saved the equivalent of cost ofliving for three months to prepare for emergency?
(About 0% / About 30% / About 50% / About 70% / About 100%)
The answer in the Financial Literacy Survey
Yes 54.9%22

No 29.7%

Do not know 15.4%

Total fertility rate in Japan is 1.44 as of 2016 (Ministry of Health, Labor, and Welfare)41

Figure 4 -3 The result of Q9 in the questionnaire(Number of answers)
120
99

100
80

68

60
41

40
20

14
1

0
About 0%

About 30%

About 50%

About 70%

About 100%

Overall

Men

Women

Experienced

Young

About 0%

6.3%

8.7%

7.5%

8.3%

4.4%

About 30%

44.4%

58.0%

37.5%

50.5%

38.6%

About 50%

30.5%

20.3%

25.0%

22.0%

38.6%

About 70%

18.4%

13.0%

30.0%

19.3%

17.5%

About 100%

0.4%

0.0%

0.0%

0.0%

0.9%

[Source] The questionnaire survey by the author

In fact, about 50% of respondents answered “Yes.” The perception of female financial
advisors was slightly overestimated, but many financial advisors answered “30%” and about
14 financial advisors said “About 0%,” which was an underestimate. According to the
Financial Literacy Survey (2016), then, the percentage of Japanese who are preparing for
emergency is higher than in the U.S.
Table 4-2 Comparing Japan and U.S.
Japan

U.S.

The proportion of those who have confidence about financial knowledge

13%

73%

Those who had set aside emergency or rainy day funds

55%

46%

The proportion of those who have life insurance policy

70%

53%

[Source] The Financial Literacy Survey (2016)

The percentage of people who are confident in financial knowledge is overwhelmingly42lower in Japan than in the U.S., as shown in Table 4-5. The lack of confidence leads to anxiety
about the future, enhancing perceived need to prepare for emergency. The proportion of people
having a life insurance policy may also be high from the same high awareness of risk. Since
the Japanese are very conservative about asset management, funds for emergency will mainly
consist of cash and deposits. It is hardly a bad thing that people prepare for an emergency.
However, excessive anxiety and preparation may cause inefficient asset management. Thus,
understanding of the social security system, investment knowledge, and financial experience,
etc., will enhance people’s confidence and may lead to more efficient asset management.
Financial advisors must grasp that point.
In the last of the questionnaire, I asked financial advisors whether or not they havelooked at the Financial Literacy Survey.
Q10 in the questionnaire
Have you ever looked at the Financial Literacy Survey done by the Central Council for
Financial Services? (Have never seen / Probably have not seen / Have seen several times /Figure 4-4 The result of Q10 in the questionnaire(Number of answers)
160
140

135

120
100
80

67

60
40

21

20

0

0
Have never seen

Probably have notseen

Have seen several
times

Saw in detail manytimes

Overall

Men

Women

Experienced

Young

Have never seen

60.5%

62.1%

58.2%

55.0%

65.8%

Probably have not seen

30.0%

28.0%

33.0%

34.9%

25.4%

have seen several times

9.4%

9.8%

8.8%

10.1%

8.8%

Saw in detail many times

0.0%

0

0

0

0

[Source] The questionnaire survey by the author

43

Saw in detail many times)
Almost all respondents answered “Have never seen” or “Probably have not seen” (Figure 44). In spite of the large scale investigation done by the Central Council for Financial
Services Information, financial advisors seem not to recognize the presence of thesurvey. Especially, young financial advisors seem not to read the survey. Since theresult of the survey reveals people’s perceptions and behavior for personal finance indetail, there is no reason for it not to be consulted.

4.4 Roles of Financial Advisors in Improving Financial Literacy
In chapter two, I discussed the characteristics of the Japanese people’s financial literacy.
Furthermore, I investigated some personal finance issues which people face in chapter one andfive. Based on them, I suggest some ways financial advisors can improve people’s financial
literacy. I will begin by introducing a way to apply the "satisfaction mirror" to personal
financial business.
4.4.1 Satisfaction Mirror
The theory of the satisfaction mirror will be one of the ways for financial advisors to improve
people’s financial literacy. Satisfaction mirror is a theory originally used to describe therelationship between customer and employee satisfaction (Figure 4-5). A high level ofcustomer satisfaction brings a mirror effect to employee satisfaction. Furthermore, it reflects
and raises customer satisfaction even more (Heskett and Sasser, 1998). The theory is not usedin personal financial business very much, but it effectively applies to the relationship between
individuals and financial advisors. I use as a premise a sales scene for mutual funds, which isone of the most popular asset management products for general consumers (Figure 4-6).
The Financial Services Agency also warns that the holding period of mutual funds inJapan is much shorter than in the U.S. and the U.K. One of the reasons for this may be that
financial advisors, such as bankers, propose frequent selling and buying to obtain salescommissions. Originally, mutual funds themselves provide diversification through investingin many shares, bonds, etc., to reduce risks. Moreover, most of them are maintained at regularinvestment destinations and these destinations assume long-term possession for investors.
Frequent trades cause trade waste fees and inefficient tax burden, and they contribute todeteriorating yield. As a result, customers can harbor dissatisfaction.
In such circumstances, some consumers will think that it is better to purchase mutual
funds through internet banks rather than buying them via financial advisors in financial
institutions. However, only sophisticated customers should purchase risky financial products
like mutual funds via the internet. Doing this will cause an undesirable or bad flow of results.
Figure 4-5 Basic of satisfaction mirror
44

More Familiarity withMore Repeat Purchases

Customer Needs andWays of Meeting them

Stronger Tendency toGreater Opportunity forComplain about Service Errors

Recovery from Errors

Higher Customer

Higher Employee

Satisfaction

Satisfaction

Lower Costs

Higher Productivity

Better Results

Improved Quality of Service[Source] “Gurobisu MBA Kiiwarado Zukai Kihon Fureemuwaaku 50”

45

Figure 4-6 Satisfaction mirror for financial advisors(1) FA are reliable for customers.

(2) FA can hear concrete requests

Customers

will

keep

good

from

relationship

with

FA

while

customers’ perception more deeply

consulting with them. Customers

and provide better consulting andrely on FA and require many

appropriate mutual funds.

customers,

understandtransactions. It does not meanfrequent selling and buying but
adding new money.
(3) As the amount of transaction(4) The relationship with customers

increases, customers will be highly

will deepen more. FA will makeinterested

furtherin

theirfinancialefforts

torecoverbytransactions and sometimes point

receiving strict complains. The

out insufficient consulting andnumber of customers without saying

mistakes.

claims will decrease.

(5)

Thankstoefficient(6) Assets in custody will increase.

transactions,

the

costs

must

Profitability improvement in thedecrease.

Customersmaylong-run.

sometimes get fees preferential
treatment.
(7) Better asset management(8) Development of consulting
quality[Note] FA stands for financial advisors

4.4.2 Activities and events for customers to improve financial literacy
Although in chapter three I suggested it is effective that both the wife and the husband should
jointly manage the household economy, financial advisors and institutions tend to unevenly
focus on women. As one example, the number of financial seminars targeting women is many
more than those targeting married couples. I conducted web research in the following way.
・Search engine: Google
・Search keywords: “women, money seminar,” “women, money workshop,” …
・Survey date: October 30, November 8, 15, and 28, 201746

・Surveyed seminars: Seminars to be held one year before the survey date or after the survey
date (seminar announcement) were targeted.
Table 4-3 Money seminars for women
Date
November 5th in 2016

Seminar title

Venue

Money seminar for beginners of women in Fukushima
Fukushima prefecture

February 21th in 2017

Free money seminar for mothers under Tokyoraising

October 30th in 2017

How to increase money high income girls

Tokyo

November 5th in 2017

Money seminar for womenTokyo

November 9th in 2017

Future design money seminar for women

Hiroshima

November 14th in 2017

Money courses for mothers wanting to save Osakachildren's educational funds

December 14th in 2017

Belle Maison money seminar. Solutions of Tokyo
your matters of your asset problems

Osaka

Although I frequently found financial seminars for women (Table 4-3), I did not findthem for couples. Only one case for a couples’ seminar appeared in my investigations.
Holding financial seminars for couples will give them opportunities to jointly think
about their household economy. For this reason, financial advisors or financial institutions
should increase in seminars for couples. Also, financial institutions should change the hoursof operation. Now, some financial institutions operate at night and on weekends, and manyother financial institutions should do the same. This will make it easier for couples to consult
with financial advisors.
Since I prioritize searching for ways to enhance customers' financial literacy while
conducting sales activities, I do not take marketing factors into account in this case.
4.4.3 Financial Advice Map for Financial Literacy Map
Financial Literacy Map summarizes the contents to be learned about minimum learned
financial literacy. The Financial Services Agency established the Financial Economics
Education Study Group and published the map by age group.
As you can see in this paper, there are areas of financial literacy that are not strong, dependingon age group or gender, and so on. All of this means that people have not cleared the minimum
level of financial literacy. Therefore, in order to enable people to make progress on this map,
I created a new map based on my research, summarizing the role of financial advisors insupporting customers. I named The Financial Advice Map for Financial Literacy Map is
47

attached at the end of this study. The map indicates what financial advisors should do toempower the people living on the map with respect to personal financial viewpoint. Financial
Literacy Map is described separately from elementary school students to the elderly, but thistime in my paper, I focused on adults and summarized the map in this way. This map isregarded as a comprehensive summary of this research.

4-5 Summary
This chapter describes the possibilities of financial advisors to improve people’s financial
literacy as well as suggests some methods to do so.
According to the questionnaire, out of 223 financial advisors, 151 respondents think thatJapanese investment knowledge has been growing in the recent three to five years (Figure47).
Q5. Do you think that Japanese investment knowledge has been enhancing in recent three tofive years?
Decrease

Relatively decrease

No change

Relatively increase

Increase

Figure 4-7 The result of question five in the questionnaire(Number of answers)

Increase

7

Relatively increase144

No change

64

Relatively decrease

5

Decrease

3
0

20

40

60

80

100

120

140

160

[Source] The questionnaire survey by the author

By and large, this paper explains that Japanese are conservative in asset management,
but many financial advisors seem to feel the gradual change of customers’ conservative.
Financial advisors should regard this change as an opportunity to enhance people's financial
literacy.

48

CHAPTER 5 CONCLUSIONS
Compared to other countries, financial literacy in Japan is relatively low, especially literacy
pertaining to investment. Loss aversion is also very high. Considering recent trends for which
voluntary efforts are required for making retirement funds, it is a key point that we should takemeasures which the study indicates as soon as possible. And, financial advisors are able tohelp development of financial literacy.

5.1 Solutions
Noteworthy is that this study points out the importance of comparing alternative options whenpeople purchase life insurance. When analyzing various attributes of the Japanese people, thisstudy found that there are various strengths and weaknesses, and also discussed the adverse
effects of not having a certain level of financial literacy before significant life events. Likewise,
taking finds in this study into account, the author lists the solutions from financial advisors
view point. The lists involve in the Financial Advice Map for Financial Literacy Map attachedthe last this chapter.


Since it is important, in particular, to compare life insurance products, financial advisors
should propose multiple plans and alternative options other than life insurance.

In order to make the most of the strengths of men and women, financial advisors shouldurge couples to manage households jointly after marriage.

Considering that making the right decisions when marriage, childbirth, and homepurchase are needed is crucial, financial advisors should explain the necessity of learning
basic personal financial matters before such life events as soon as possible.

Financial advisors should explain the possibility of price increases in the future, and themechanism that interest is borne on the borrowed amount before determining the floating
rate or the fixed rate. In the case of selecting the floating rate, financial advisors should
explain in an easy to understand way basic knowledge on how the interest rate fluctuates.

As there is a possibility that the preparation for education and retirement funding may not
be carried out in an appropriate way, financial advisors should confirm why these
preparations are done by the present methods and provide alternative plans to improve on
current ways.



Financial advisors should explain about the financial ADR23, which provides solutions
for financial trouble at low cost and over short terms. Customers will be relieved to know
the existence of the financial ADR. It will contribute to a good relationship between

23

ADR stands for Alternative Dispute Resolution. One of the financial ADR is FINMAC (Financial
Instruments Mediation Assistance Center)49

customers and Financial Advisors.
Financial advisors should make the most of the Financial Literacy Survey and othersurvey to deeply understand customer condition.
Financial advisors have opportunities to contact consumers on many occasions such as

for insurance and mortgage contracts as well as securities investment. They are also in aposition to comprehend the low financial literacy of Japanese people. Therefore, financial
advisors can contribute to improving people's financial literacy. To do so, it is necessary forthem to strive even further to give customized advice and support, while considering individual
customer attributes.

5.2 Implications
At present, many people tend to prioritize financial transactions conducted over the internet
without any face-to-face contact with financial advisors. However, the environment of
personal finance is rapidly changing with the appearance of virtual currency and thedevelopment of Fintech. Without a certain degree financial literacy, more and more people
may face with financial challenges. In other words, new social problems regarding personal
finance may emerge one after another.
When it comes to current social problems, these will be improved if financial literacy isfurther developed. In this study, the author suggested that household economy management be
done jointly in the case of couples. Recently, the poverty rate of single-parent households
exceeded 50%, far exceeding that of two-parent households. Many of these single-parent
households lack educational funds for children. Thus, education gaps owing to poverty are a
crucial problem now. In the elder generations, damage caused by transfer fraud is anothersocial problem. Does a low level of financial literacy have an influence on these social
problems, more or less?
If the number of couples cooperating to economically manage households increases, leading
to reduction of divorce as a result of financial problems, it will contribute to reducing thenumber of single-parent households. It can also be expected to improve poverty-related
problems. In addition, it is expected that people who have careful attitudes about money will
increase through their engagement in household economic management. As a result, there will
also be a reduction in the damage from fraud when these people become senior citizens.
The increase in livelihood protection recipients is because the number of elderly
recipients is increasing, which underscores the importance of earlier preparation for retirement
through better understanding of the social insurance system and, also of asset management.
Thus, the defined contribution pension will give people decent opportunities to learn about thesocial insurance system and to practice investment. Typical Japanese people with low levels
50

of financial literacy should change their minds and take actions to prepare for future society.

5.3 Future Challenges
This study used the Financial Literacy Survey but did not obtain individual data. In the future,
I would like to tackle other problems in financial literacy through setting hypotheses andconducting consumer surveys to further analyze Japanese financial literacy and to suggest
effective solutions. Another issue is that the paper describes a financial advice map, but it does
not apply to the entire Financial Literacy Map. It will be a significant achievement to complete
the financial advice map and to inform many more financial advisors about the map.
Development of financial literacy can enhance people's living standards. Furthermore,it can serve as one of the pillars to solve various social problems. In that sense, financial
advisors should further explore their presence and their possibilities while remembering their
responsibilities.

51

APPENDICIES<Appendix 1>
The literacy questions that measure the four fundamental concepts for financial decisionmaking: basic numeracy, interest compounding, inflation, and risk diversification. (The answer
options are in the brackets, with the correct answer in bold.) in the S&P Global FinLit24 Survey.
<Appendix 2> Summary extract of the Financial Literacy Map
1. Risk diversification
Suppose you have some money. Is it safer to put your money into one business or investment, or
to put your money into multiple businesses or investments?
[one business or investment; multiple businesses or investments; don’t know; refused toanswer]
2. Inflation
Suppose over the next 10 years, the prices of the things you buy double. If your income also
doubles, will you be able to buy less than you can buy today, the same as you can buy today, or
more than you can buy today?
[less; the same; more; don’t know; refused to answer]
3. Numeracy (interest)
Suppose you need to borrow 100 US dollars. Which is the lower amount to pay back: 105 US
dollars or 100 US dollars plus three percent?
[105 US dollars; 100 US dollars plus three percent; don’t know; refused to answer]
4. Compound interest
Suppose you put money in the bank for two years, and the bank agrees to add 15% per year toyour account. Will the bank add more money to your account the second year than it did the firstyear, or will it add the same amount of money both years?
[more; the same; don’t know; refused to answer]
5. Compound interest
Suppose you had 100 U.S. dollars in a savings account and the bank adds 10% per year to theaccount. How much money would you have in the account after five years if you did not remove
any money from the account?
[more than 150 dollars; exactly 150 dollars; less than 150 dollars; don’t know;
refused to answer]

24

FinLit stands for Finance Literacy

52Category

Young adults

AdultsSenior citizens

Starting to live

LivingCovering living expenses mainly

independently inindependently

with pension income and money

terms ofand assuming

obtained by cashing out financial

lifestyle andfull-fledged

assets.

financialresponsibility as

aspects.

working people.

FamilyBeing able to

Being able to

Being able to manage income andbudgetspend money onunderstandexpenditure and take necessary

management

one's hobby or

income andaction for improvement according

improving one's

expenditure as

to a post-retirement plan.

skills according

well as assets

to a plan, while

and liabilities ofproperly

one's household

managingby keeping a

income andhouseholdexpenditure toaccount book as

support one's

the breadwinnerhouseholdof theincome.

household, andimproving thebalance asnecessary.

Life planning

Working on a

Reconsidering

Reviewing one's post-retirement

life plan so that

one's life plan,

life plan while taking into

one can achievefinancial plan,consideration the effective use of

one's dreams

and assets toleisure time and contribution toand hopes while

hold when

one's family and society.

engaging in thenecessity arises

Changing one's lifestyle to one

occupation one

in light of theaffordable with a pension andhas chosen.

changes in one's

making steady efforts so that one

Being able tocircumstances,

can live a spiritually rich andestimate how

and making

stable life.

much money

constant efforts

one would needto achieve one's

to achieve one's

life plan in view

life plan, and toof one's life in53

save money andold age.

manage assets

Engaging inaccording to afinancialplan.

education forchildren at homein cooperation
with school.

[Note] For details on the Financial Literacy Map, see the website of the Central Council for

Financial Services Information (https://www.shiruporuto.jp/e/).
[Source] The Financial Literacy Survey (2016)

54

<Appendix 3> Definition of the Financial Literacy Map

More autonomous,
Provision of high quality
financial products

secure and affluent

Effective utilization ofindividuals

household financial
assetsDevelopment of financial literacy

Development of
Education throughfinancial literacy
lectures and seminars

Extension activities

through distribution ofDevelopment
materials on websites

Creating teaching materials, pamphlets, etc., based on thefinancial literacy map through financial economic education

Young adults

AdultsSenior citizens

First financial literacy standard in Japan[Source] Presentation document in a subcoomittee by Masataka Honke. 25

25

The subcommittee took place on June 27th in 2014, Masataka Honke, the Chairman of the Financial
Public Relations Central Committee, wrote the document. Since this study does not focus onreforming school education but rather on financial transaction sites, elementary to university
students are omitted in the chart by the author.

55

<Appendix 4> Financial Advice Map for the Financial Literacy Map
1.Family budget management<Financial Literacy Map> For young adults
Being able to spend money on one’s hobby or on improving one’s skills according to a plan
while properly managing income and expenditure to support household income.
<Financial Advice Map>
In order to make the most of the strengths of men and women, FA should urge couples tomanage households jointly after marriage.
2.Life planning<Financial Literacy Map> For young adults
Being able to estimate how much money one would need to achieve one’s life plan, and tosave money and manage assets according to a plan.
<Financial Advice Map>
Considering that making the right decisions when marriage, childbirth, and home purchaseare needed is crucial, FA should explain the necessity of learning basic personal financial
matters, such as interest rates and inflation, as soon as possible.
<Financial Literacy Map> For adults
Reconsidering one’s life plan, financial plan, and assets needed in light of potential changes
in one’s circumstances and making a constant effort to achieve one’s life plan in view of
one’s life in old age.
<Financial Advice Map>
As there is a possibility that the preparation for education and retirement funding may not
be carried out in an appropriate way, FA should confirm why these preparations are done by
the present methods and provide alternative plans to improve on current ways.
3.Financial knowledge, understanding of financial/economic circumstances, and appropriate
selection/use of financial products<Financial Literacy Map> For young adults, adults, and senior citizens
Being able to compare and examine collected information and pursue appropriate consumption
behaviors.
<Financial Advice Map>
Since it is important, in particular, to compare life insurance products, FA should propose
multiple plans and alternative options other than life insurance.
56

<Financial Literacy Map> For young adults

Understanding the basic characteristics of mortgage loans, acquiring concrete knowledge
when necessity arises, and establishing borrowing according to repayment ability.
<Financial Advice Map>
FA should explain the possibility of price increases in the future, and the mechanism that interest
is borne on the borrowed amount before determining the floating rate or the fixed rate. In thecase of selecting the floating rate, FA should explain in an easy to understand way basic
knowledge on how the interest rate fluctuates.
4. Appropriate use of outside expertise<Financial Literacy Map> For young adults
Understanding the need to know the appropriate institutions, and which provide
consultation from different viewpoints when selecting or using financial
products.
<Financial Advice Map>
One-third of those who experienced financial trouble did not know such a consultant office or asystem existed at the time of the survey. Hence, FA should explain about the financial ADR,
which provides solutions for financial trouble at low cost and over short terms. Customers will
be relieved to know the existence of the financial ADR. It will contribute to a good relationshipbetween customers and FA.
[Note]

FA stands for financial advisors

57

<Appendix 5>
金融リテラシーに関するアンケート（金融機関業務、ＦＰ業務従事者向け）
金融リテラシーに関する調査を行い、論文を作成しています。集計データとしてのみ利用いたします。
何卒、ご協力のほどよろしくお願いいたします。
（２～３分で終了します。
）①あなたのことを教えてください。
男性

女性

年齢（

）歳代

現在勤務している都道府県（）②金融・ＦＰ業務歴（通算）
1 年未満

1 年以上

3 年以上

5 年以上

10 年以上15 年以上20 年以上③日本人の金融リテラシーは高いと思いますか？
※金融リテラシーとは、お金の知識や判断力のこととして考えてください。
低い

やや低い

普通

やや高い

高い

④日本人の男性と女性、どちらが、金融リテラシーが高いと思いますか？
男性

女性

どちらも変わらない⑤ここ数年（３年～５年）、日本人の投資に関する意識（積極性）や知識力は高まっていると思いますか？
（業務歴の短い方も分かる範囲でご回答ください。
）
低下している

やや低下している

変わっていない

やや高まっている

かなり高まっている⑥10 万円を投資すると、半々の確率で 2 万円の値上がり益か、1 万円の値下がり損のいずれかが発生します。あなたなら、どうしますか？（どちらか１つ回答してください）
投資する

投資しない

⑦上記⑥の問に、日本人 18 歳～79 歳の 25,000 人(調査対象者)の何割が「投資する」と回答したと思い
ますか？
約2割

約4割

約6割

約8割

⑧同調査対象者 25,000 人のうち何割が「インフレ」に対し一定の理解を有していたと思いますか？
約2割

約4割

約6割

約8割

⑨同調査対象者 25,000 人のうち、失業など非常時の備えとして 3 か月分の生活費を確保している人の割
合は？
ほぼゼロ

3 割未満

約半分

7 割以上

ほぼ 10 割

⑩金融広報中央委員会が、わが国初の大規模調査として実施した「金融リテラシー調査」を 2016 年 6 月に公表しました。この調査結果を見たことがありますか？
見たことがない

おそらく見ていない

何度か見た

細かく調査内容など確認した

アンケートは以上です。ご協力ありがとうございました。
同調査を踏まえパーソナルファイナンスを取り巻く環境が改善することに努めたいと思っております。
内山ＦＰ総合事務所株式会社
代表取締役

58

内山

貴博

<Appendix 6>
Questionnaire on Financial Literacy in English
We will only use data as summary for preparing the thesis.
Thank you for your cooperation of couple of minutes in advance.
1. Could you please tell me about yourself?
Male

Female age group ()

resident prefecture ()

2. How many years have you been working in financial fields or working as Financial advisor?
within 1 year

over 1 year

over 3 years

over 5 years

over 10 years

over 15 years

over 20years
3. Do you think that the Japanese financial literacy has been enhancing? (knowledge and making
effective decisions about financial matters)
Not at all

A little

Quite a lot

Very much

4. Which do you think that male or female has financial literacy more?
Male

FemaleNeither

5. Do you think that Japanese investment knowledge has been enhancing in recent three to five
years?
Decrease

Relatively decrease

No change

Relatively increase

Increase

6. Suppose that, if you invested 100,000 yen, you would either get a capital gain of 20,000 yen
or a capital loss of 10,000 yen, at 50% probability. What would you do?
Yes (I would invest.)

No (I would not invest.)

7. What do you think about how percentage of Japanese 25,000 people (18 years old to 79
years old) answered ‘I want to invest’?
About 20% / About 40% / About 60% /About 80%
8. What do you think about how percentage of Japanese 25,000 people (18 years old to 79
years old) agreed ‘the inflation’?
About 20% / About 40% / About 60% /About 80%
9. What percentage of respondents surveyed do you think have saved the equivalent of cost ofliving for three months to prepare for emergency?
About 0% / About 30% / About 50% / About 70% / About 100%
10. Have you ever seen the result of the Financial Public Relations Central Committee
published the “Financial Literacy Survey” in June 2016?
Have never seen / Probably have seen / Have seen several times / Saw in detail many times
The questionnaire is all. Thank you for your cooperation.
Based on this survey we would like to improve the personal finance.
Uchiyama FP Office Co., Ltd.
Takahiro Uchiyama

59

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Central Council for Financial Services Information. (2016). Financial Literacy Survey
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Households. Bank of Japan.

Inoguchi, K. (2013). “Minkan seimeihokengaisya no yoteiriritsu no hensen to
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Kamiya, T. (2017). “Fainansiaru literasi syakudokaihatsu no genjyo to kadai.”, [A review ofdefinitions and measurement scales for financial literacy]. Shinrigaku Kenkyuu 2017, [TheJapanese Journal of Psychology], Vol.87, No. 6, pp.651-668. (in Japanese).
MonticoneCalcagno and ChiaraRiccardo. (2013). Financial literacy and the demand
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Okamoto, M. (2015). “Sekai to nihon no kakeikanri no jittai to doukou: Kokusaisyakaityousa
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Yamaoka, M, Asano, T, Abe, S. (2017). “Dai sankai paasonaru fainansu tesuto no
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61