Mitsumoto Akiyo - 2014 Symposium on Financial Education in Korea


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This presentation by Mitsumoto Akiyo was made at the High-level Global Symposium on Financial Education: Promoting Long-term Savings and Investments in Korea which explored policies and good practices for supporting long-term savings and investments through financial education and financial consumer protection. Find out more at

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Mitsumoto Akiyo - 2014 Symposium on Financial Education in Korea

  1. 1. High-Level Global Symposium on Financial Education Seoul, South Korea February 26, 2014 Development of Financial Education in Japan Deputy Director, Policy and Legal Division, Planning and Coordination Bureau, JFSA February 26, 2014 * Any views expressed in this presentation are those of the speaker, and do not represent the official views of JFSA. JFSA Akiyo Mitsumoto
  2. 2. Table of contents 1. Understanding the need for financial education in Japan from trends of household's asset allocation in Japan 2. Development of financial education in Japan (outline of updated national strategy in Japan and future direction) 3. Outline of “NISA (Nippon Individual Savings Account)” and its implications for financial education of households: NISA will provide opportunities for households to learn about mid- and long term investment. Development of Financial Education in Japan 2
  3. 3. Cash and Deposits: 567 Insurance and Pension Funds: 1049 Securities: 782 Stocks: 1170 Others: 147 USA Total: 3715 Cash and Deposits: 792 Insurance and Pension Funds: 399 Securities: 92 Stocks: 87 Others: 58 Japan Total: 1428 dash and Deposits: 221 Insurance and Pension Funds: 189 Securities : 103 Stocks: 44 Others: 5 Germany Total: 562 * The size of each pie chart shows the total amount of personal- sector financial assets Source: Yoshino & Kaji (2013) Hometown Investment Trust Funds, Springer [2010, Trillion yen] Households’ Asset Allocation in Japan (1) “In Japan, cash and deposits are nearly 60% of assets managed. The amount of marketable securities and shares is extremely small.” 3
  4. 4. Households’ Asset Allocation in Japan (2) Source: Bank of Japan 4 Around 80% of households financial assets go to safe assets. Currency and Deposits Insurance Pension reservs 4
  5. 5. Households’ Asset Allocation in Japan (3) Development of Financial Education in Japan Around 50% choose financial institutions for safety, not for high rate of return. Source: “Public Opinion Survey on Household Financial Assets and Liabilities (2013),” Bank of Japan. Reasons behind customers’ choice of financial institution Others Simple Financial Products Easy withdrawal and easy to make deposits Easy to change to cash (Liquidity) Expected High Rate of ReturnHigh Rate of Return Principal Guaranteed Reliability and Safety of Financial Institution 5
  6. 6. Source: Yoshino & Kaji (2013) Hometown Investment Trust Funds, Springer (Dividends & Interest receipt) / (Income) Germany UK USA France “Japanese are engaging in investment, but the fact is that their earnings as a percentage of income are the lowest in the OECD.” Japan Households’ Asset Allocation in Japan (4) Need for a change in the way of thinking (from saving to investment)  For a long time, Japanese were taught to work harder, rather than to think about investment. There has been education at home, schools and work places that values hard earned money while easy money was considered unworthy. 6
  7. 7. 7JFSA Japan’s Aging Population (1) ~Challenges for younger generations in the future~ (Millions) 140 120 100 80 60 40 20 0 Source: Ministry of Internal Affairs and Communications. Population structure of Japan 7
  8. 8. Japan’s Aging Population (2) ~Challenges for younger generations in the future~ The household savings rate in Japan has been rapidly and steadily declining. It is a result of three main factors: (1) population aging; (2) declining the number of children, and (3) growing at a low rate of incomes Households’ saving rate Canada, Germany, Italy, Japan, Korea, Sweden and USA. Source: OECD Economic Outlook, Volume 2013 Issue 1 - No. 93 - JAPAN 8
  9. 9. Source: “Family Income and Expenditure Survey (Savings and Liabilities) (2013),” Ministry of Internal Affairs and Communications. (Age groups) February 26, 2014 9 Share of households’ savings by different age groups Increasing Importance of Financial Assets Management in Aging Japan  Many senior citizens still lose money on fraudulent financial transactions Of all the cases that were informed to and consulted with JFSA regarding such transactions, 58% were cases that involved people over 60's. (Source: The Status Report of consultations with Financial Services Users from October to December, 2013,” JFSA)  Over 60s are richest people in Japan 62.4% were over 60's of all shares of households’ savings. Financial education focused on the older generation is needed 9
  10. 10. Development of Financial Education in Japan Japan’s National Strategies used to be: 10 (1) Background The JFSA organized a study group on financial education in November 2012 “High-Level Principles on National Strategies for Financial Education” endorsed by the G20 leaders at the Los Cabos Summit in June 2012 (a)“Agenda for Finance and Economics Education”(2005) (b) “Financial Education Program” (2007) (a) was updated in April 2013 by “Report of Study Group on Financial Education”(2013)  Main Objectives of Financial Education in this Report ~Toward Fair and Sustainable Society~ 1. As a Life skill, 2. Encouraging the provision of sound, high-quality financial products 3. Encouraging the effective use of household financial assets in Japan 10
  11. 11. (2) Future policy for financial education in Japan 11 ~Based on “Report of Study Group on Financial Education”(2013)~ Development of Financial Education in Japan (2)  Financial literacy that should be attained (1) Emphasis on behavioral aspects (2) Common minimum level of financial literacy to be attained  4 categories with 15 items ← Shared it among related parties and implement educational activities focusing on such minimum requirements (3) Establishment of standards for systematic educational content Establish more detailed standards, formulated in a systematic fashion, for the content of educational content by age and category  Recipients of financial education: Greater focus on working adults and senior citizens as well as students  Approaches in each Category (1) Approaches for All age • Financial education is provided in accordance with each age group. (2) Development of human resources for financial Education • Enhancing schoolteachers’ awareness and skills for financial education • Encouraging people who have retired from financial institutions to teach students. (3) Improvements to information provision of financial products 11
  12. 12. (Making a habit of proper income/expenditure management (eliminating debts and staying in the black) Articulating life plans and understanding the need to secure the funds required for life plans Making a habit of assuming a fundamentally careful attitude toward contracts Making a habit of confirming the reliability of information sources and contract counterparties Understanding that Internet transactions are convenient but require some precautions different from face-to-face transactions [Common to all categories of finance] Understanding key concepts constituting the foundations of financial education (interest (simple interest, compound interest), inflation, deflation, exchange rates, risk-return, etc.), and the selection/use of financial products suited to financial and economic circumstances Understanding the importance of ascertaining the actual cost (price) of a transaction (1) (2) (3) (4) (5) (6) (7) Common Minimum Level of Financial Literacy to be Attained (4 categories) 1. Family budget management 2. Life planning 3. Understanding of financial knowledge and financial/economic circumstances, and selection/use of appropriate financial products [Knowledge of the basics of financial transactions] (8) (9) (10) (11) (12) (13) (14) (15) Understanding for which contingencies (death, illness, fire, etc.) one should seek insurance coverage Understanding the amount of economic security required should a covered contingency occur Understanding basic precautions when arranging a home loan ① Importance of setting a reasonable loan limit and putting together a repayment plan ② Importance of preparing for the possibility of circumstances that could make repayment difficult Making a habit of avoiding thoughtless/reckless use of credit cards and credit card loans Understanding that seeking higher returns will entail assuming higher risks, although risk tolerance varies from person to person Understanding the effectiveness of diversification in wealth building (diversifying investment assets and investment start times) Understanding the effectiveness of long-term investments in building wealth Understanding the importance of appropriately employing outside experts when selecting/using financial products [Insurance products] [Loans/credit] [Wealth-building products] 4. Appropriate use of outside expertise 12
  13. 13. Financial intermediaries • Banks • Broker-dealers • Insurance companies • Asset managers • Exchanges JFSA Inspection Supervision Investment Debt Equity Financial education Household Senior people Working people -junior workers -senior workers University Students Elementary, junior and high school students SMEs, Large companies Deposit, etc. Direct investment Consumer Affairs Agency Collaboration Collaboration ① Ensure financial stability ② Protect depositors ③ Facilitate financing Enterprises BOJ CCFCICentral Council for Financial Services Information Associations Roles Played by the Financial Services Agency (JFSA) Ministry of Education Schools “Committee for the Promotion of Financial Education” 13
  14. 14. (1) A forum (“Committee for the Promotion of Financial Education”) was organized to address the following issues ・ Define what to be learned at what age group ・ Promote the mutual linkage of websites of relevant organizations (2) Regular measurements of effectiveness Utilize the CCFSI’s “Financial Literacy Survey” to measure progress in making financial education available. Measures for promoting financial education Development of Financial Education in Japan (2) 14 JFSA’s website Promoting the Central Council’s website (“Shiruporuto”) as the first line access point. “Shiruporuto” Way forward…  A survey targeted at 7,000 people in 2013 (conducted by Japan Securities Dealers Association) shows that 46.8% answered that they did not feel that they need to learn about securities investment in their life.
  15. 15. Item Outline Timing of the Introduction January 1,2014 Investment period 10 years(2014~2023) Scope Dividends and capital gains derived from listed shares and publicly-offered stock investment funds in NISA account Annual investment limit JPY 1 million Tax-exempt period 5 years Eligible persons Residents of Japan (20 years old and above) Withdrawing Free(Reinvestment is not allowed) Profit/loss offset Tax losses generated in NISA accounts are not available Number of accounts Only 1 account per person NISA gives individual investors a tax exemption on dividends and capital gains derived from listed shares and investment trusts up to 1 million yen annually. 15 NISA (Nippon Individual Savings Account) started ~ From Saving to Investment ~ * Income/capital gain from NISA is exempted from taxation for a maximum of 5 years. * After the 5-year exemption period, investors can: > continue tax exemption through newly available investment limit; or > transfer securities into an ordinary account. 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 ・・・ 2023 JPY1M 2022 JPY1M 2021 JPY1M 2020 JPY1M 2019 JPY1M 2018 JPY1M 2017 JPY1M 2016 JPY1M 2015 JPY1M 2014 JPY1M Investment Period: 10 years from 2014 Tax-exempt period : 5 years 15
  16. 16. NISA is an appropriate arrangement for reduction of risks associated with investment through diversification and medium to long-term holding 2014 2015 2016 2017 2018 2019 2020 2021 … … 1 mill. JPY 1 mill. JPY 1 mil. JPY (1) Investment of 1 million JPY every year (diversification in investment period) sale of assets (2) Dividends and capital gains are tax free for five years, but if assets are sold before that period ends, the tax free benefit cannot be reused again for this 5-year facility (appropriate for medium to long- term asset holding) 2014 2015 2016 … Enhancement of Financial Literacy: better understanding and use of financial products NISA (Nippon Individual Savings Account) started 16
  17. 17. February 26, 2014 JFSA Thank you!17  Learning “Contract” in class • A photo from February 23, 2014 at the Megurita Primary School in Tokyo. The fifth grade students were attending the financial education class. Today’s topic is “what is contract ?” • The Megurita Primary School has been making advanced efforts in financial education and introduce different programs to all grades in accordance with each grades. • It is necessary that each age group will develop financial literacy step by step as the education proceeds.