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Financial Education, Financial

Literacy and Household Asset
Allocation in Japan
Naoyuki Yoshino
Dean
Peter J. Morgan
Senior Consulting Economist and Vice Chair of Research​
Long Q. Trinh
Project Consultant​
Asian Development Bank Institute​

ADBI Annual Conference “Financial Inclusion, Financial Literacy and

Fintech” ADBI, 28-29 November 2019
Copyright © 2019 by Asian Development Bank Institute. All rights reserved.
Contents

I. Background, motivation and contributions

II. Financial education, financial literacy and household
asset allocation: Literature review
III. Financial education in Japan
IV. Bank of Japan’s financial literacy survey
V. Empirical approach
VI. Empirical results
VII. Conclusions

2
I. Background, motivation and contributions

• Low level of financial literacy, even in advanced

economies.
• Japan: financial literacy of Japanese is slightly lower than in USA,
Germany and UK (Central Council for Financial Services Information
2016)
• Increasing need for individuals to manage their own
retirement savings and pensions  rising need to
increase levels of financial literacy
• Development of fintech can help financial inclusion,
but requires digital financial literacy
• Financial education is potentially important for raising
financial literacy level in Japan, but literature on its
effectiveness is inconclusive, so this area needs further
study

3
Background, motivation and contributions (2)
This study examines effects of financial education on financial
literacy and household asset allocation in Japan
Contributions:
• A number of studies on the effects of financial education
on HH resource allocation in developed countries, but none
we know of controls for the role of financial education at
home
• We control for both direct and indirect effects
• We focus on investment in risky assets rather than other
behavior (savings or financial planning)
• We attempt to derive causality between financial education
and risky assets allocation with observational data (rather
than RCTs) using instrumental variables

4
II. Financial education, financial literacy and
household asset allocation: Literature review
Kaiser and Menkhoff (2017): Meta-analysis of 126 RCT studies;
• Financial education has a strong positive impact on financial literacy, and effects
on financial literacy are positively correlated with effects on financial behavior;
• Financial education has a positive, measurable impact on financial behavior;
• Effects of financial education are heterogenous
• Success of financial education depends on the type of financial behavior targeted
• Characteristics of financial education can make a difference.

But…Fernandes, Lynch and Netemeyer (2014): Meta-analysis of 168 studies;

• Interventions to improve financial literacy explain only 0.1% of the variance in
financial behaviors, with weaker effects in low-income samples.
• Effect of financial education decays over time;
• Effects of financial literacy diminish dramatically if control for psychological traits;
Some other studies only find effects of financial education on financial
literacy, but not on financial behavior (Kalmi 2014)
Few studies focused specifically on the effects of financial education on
household asset allocation/risky financial behaviors

5
III. Financial education in Japan
Japan is one of few countries to have financial education in school
curriculum at junior high and high school levels
Recent evaluation survey by Study Group on the Promotion of
Financial and Economic Education (Chairman: Dean Yoshino)
Target: Total distributed questionnaires: 32,220
Teachers at almost all junior high schools (JHS) and high schools (HS)
in Japan, who teach finance-related subjects, such as Social
Studies(JHS), Technology and Home Economics (JHS), Civics (HS),
Home Economics(HS), Commerce (HS).
Response: 4,462 questionnaires (13.8% response rate)
Survey Period: From December 2013 to January 2014.
Report Available at:
http://www.jsda.or.jp/en/activities/research-studies/html/20140827edu.html

6
Finance is taught, but for only a few hours

Actual Time Spent Teaching Financial and Economic Education

7
Many difficulties in teaching finance in school
Q: Do you encounter any difficulties when teaching financial
and economic education in your lessons?

“Difficult for students to understand” (48.9%)

Students
“Low level of interest among students”(25.7%)

“Lack of expertise among teachers” (48.4%)

Teachers
“Little opportunity for teachers to obtain
training” (14.0%)

“Not enough lesson time” (44.9%)

Curriculum
“No appropriate teaching material” (26.6%)

“Changes in the actual economy are too

Subject
complex” (26.6%) 8
8
IV. Bank of Japan’s Financial Literacy Survey
Sample size: 25,000 (in proportion to Japan’s demographic and economic structure)
• 49.5% male
• 15% less than age 30; 37% aged more than 60
• 35% have at most high school degree; 42% have at least university degree
• 34% are part-timers and homemakers
• Most respondents have annual income less than JPY 5 million (about $46,600).
25 questions on financial literacy:
• 3 questions on basic financial transactions, 6 on basic eco/fin knowledge, 9 on
basic knowledge of wealth building, insurance, lending and borrowing; 2 on
household budget management, 2 on life planning skills, and 3 on using outside
expertise.
Questions on financial education at school/work and financial education at home
Other demographic information

9
Descriptive statistics
Financial education at School/Work and at Home

No Fin Edu Fin Edu at

Total
at Home Home

No Fin Edu at School/Work 75.6% 17.2% 92.8%

Fin Edu at School/Work 4.1% 3.1% 7.2%

Total 79.7% 20.3% 100.0%

10
Descriptive statistics (2)
Those who received financial education at
school/work
Age Income (Yen)

<30 12.5% < 2.5mil. 6.7%

=30 & <40 7.3% >=2.5mil & <5mil 6.0%

>=40 & <50 5.3% >=5mil. & <7.5mil. 8.8%

>=50 & <60 6.6% >=7.5mil. & <10mil. 9.9%

>=60 & <70 5.8% >=10mil. & <15mil. 12.1%

>=70 6.5% >=15mil. 10.7%

11
Descriptive statistics (3)
Financial education and financial literacy score
18 16.8
16.3
16
13.9 13.6
14 13.5

12

10

0
No financial Had financial No financial Had financial No financial
education at education at education at home education at home education at both
school/work school/work home and
school/work

12
Descriptive statistics (4)
Financial education (at school/work) and holding of
financial assets
80%

70% 68%

60%
55%

50% 48%
42%
40%
34%
30%
30% 26%
21%
20% 16%

10% 7%

0%
Any financial assets Stock Investment trust Foreign currency Crypto asset
No financial education Had financial education

13
V. Empirical approach
Financial literacy equation:
𝐹𝐹𝐹𝐹𝑖𝑖 = 𝛼𝛼0 + 𝛼𝛼1 𝐹𝐹𝐹𝐹𝐹𝐹𝑈𝑈𝑖𝑖 + 𝛼𝛼2 𝑋𝑋𝑖𝑖 + 𝜖𝜖𝑖𝑖 (1)
𝐹𝐹𝐹𝐹𝑖𝑖 : Financial literacy score
𝐹𝐹𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖 : Financial education: dummy variable, taking value of one if
individual 𝑖𝑖 took financial education at school/work and 0 otherwise
• We focus on financial education outside the home in this study
Control variables: financial literacy, age, education level, income
level, occupation, prefecture dummies.
Identification: Assume financial education is endogenous. Use IV
approach. Instrumental variable: Whether financial education is
offered or not.

14
Empirical approach (2)
HH asset allocation equation:
𝐴𝐴𝑖𝑖 = 𝛼𝛼0 + 𝛼𝛼1 𝐹𝐹𝐹𝐹𝐹𝐹𝑈𝑈𝑖𝑖 + 𝛼𝛼2 𝑋𝑋𝑖𝑖 + 𝜖𝜖𝑖𝑖 (2)
𝐴𝐴𝑖𝑖 : dummy variable; equal to one if individual 𝑖𝑖 holds financial assets:
• 4 types of financial assets: stock, investment trust, foreign
currency and crypto assets
𝐹𝐹𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖 : Financial education: dummy variable, taking value of one if
individual 𝑖𝑖 took financial education at school/work
• We focus on financial education outside the home in this study
Control variables: financial literacy, age, education level, income
level, occupation, prefecture dummies.
Identification: Assume financial education is endogenous. Use IV
approach. Instrumental variable: Whether financial education is
offered or not.

15
Empirical approach (3)

To examine the role of financial education at home  augmented our HH asset

allocation equation:

𝐴𝐴𝑖𝑖 = 𝛽𝛽0 + ∑𝑗𝑗 𝛽𝛽𝑗𝑗 (𝐹𝐹𝐹𝐹𝐹𝐹𝑈𝑈𝑖𝑖 #𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐸𝐸𝑖𝑖 ) + 𝛽𝛽2 𝑋𝑋𝑖𝑖 + 𝜖𝜖𝑖𝑖 (3)

There are 4 options (j):

• No financial education at school/work or at home
• No financial education at school/work but at home
• Financial education at school/work but not at home
• Financial education at both school/work and home
Use the first option as reference group.
Dependent variables and control variables as in equation (2)

16
VI. Empirical results
Effect of financial education on financial literacy
(1) (2) (3) (4)
OLS IV IV IV
Financial education at school 0.224*** 0.138*** 0.067*** 0.085***
[0.020] [0.024] [0.024] [0.032]
Financial education at home 0.276***
[0.012]
Financial education at school*Financial 0.123***
education at home [0.044]
Other control variables Yes Yes Yes Yes
Intercept -1.003*** -0.995*** -1.053*** -0.996***
[0.057] [0.057] [0.056] [0.057]
R-sq 0.281 0.280 0.291 0.280
N 25,000 25,000 25,000 25,000

17
Empirical results (2)
Financial education & asset allocation: OLS estimation
Any
Investment Foreign Crypto
Financial Stock
Trust Currency Assets
Products
(1) (2) (3) (4) (5)
Financial education 0.144*** 0.141*** 0.146*** 0.124*** 0.113***
[0.011] [0.011] [0.012] [0.011] [0.009]
Financial literacy 0.099*** 0.069*** 0.074*** 0.038*** -0.019***
[0.003] [0.003] [0.003] [0.003] [0.002]
Male 0.061*** 0.097*** 0.003 0.011** 0.042***
[0.007] [0.006] [0.006] [0.005] [0.004]
Other control variables Yes Yes Yes Yes Yes
Intercept 0.249*** 0.138*** 0.218*** 0.124*** 0.072***
[0.026] [0.023] [0.022] [0.019] [0.017]
R-sq 0.273 0.253 0.190 0.120 0.068
Number of observation 25,000 25,000 25,000 25,000 25,000

18
Empirical results (3)
IV estimation
Any
Investment Foreign Crypto
Financial Stock
Trust Currency Assets
Products

(1) (2) (3) (4) (5)

Financial education at school/work 0.193*** 0.193*** 0.194*** 0.172*** 0.164***
[0.013] [0.013] [0.013] [0.013] [0.011]
Financial literacy 0.098*** 0.068*** 0.073*** 0.037*** -0.020***
[0.003] [0.003] [0.003] [0.003] [0.002]
Male 0.060*** 0.097*** 0.002 0.011** 0.042***
[0.007] [0.006] [0.006] [0.005] [0.004]
Other control variables Yes Yes Yes Yes Yes
Intercept 0.244*** 0.133*** 0.213*** 0.119*** 0.066***
[0.026] [0.023] [0.022] [0.019] [0.017]
R-sq 0.273 0.252 0.189 0.119 0.066
N 25,000 25,000 25,000 25,000 25,000

19
Empirical results (4)
Financial education at home & at school/work role
Any
Investment Foreign Crypto
Financial Stock
Trust Currency Assets
Products

(1) (2) (3) (4) (5)

Financial education at
school/work 0.147*** 0.142*** 0.149*** 0.125*** 0.114***
[0.011] [0.011] [0.012] [0.011] [0.009]
Financial education at home -0.016** -0.007 -0.015** -0.008 -0.003
[0.007] [0.007] [0.007] [0.006] [0.004]
Financial literacy 0.100*** 0.069*** 0.075*** 0.038*** -0.019***
[0.003] [0.003] [0.003] [0.003] [0.002]
Other control variables Yes Yes Yes Yes Yes
Intercept 0.254*** 0.140*** 0.222*** 0.126*** 0.073***
[0.026] [0.023] [0.022] [0.019] [0.017]
R-sq 0.274 0.253 0.190 0.120 0.068
N 25,000 25,000 25,000 25,000 25,000

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Empirical results (5)
Financial education at home & at school/work role
• No fin ed at school/work & no fin ed at home as reference group
Any
Trust Fund Foreign Crypto
Financial Stock
Investment Currency Assets
Products
(1) (2) (3) (4) (5)
No FE at school/work, FE at home -0.006 -0.001 -0.007 -0.001 -0.000
[0.007] [0.007] [0.007] [0.006] [0.004]
FE at school/work, no FE at home 0.179*** 0.164*** 0.179*** 0.151*** 0.123***
[0.014] [0.015] [0.015] [0.015] [0.012]
FE at school/work, FE at home 0.093*** 0.109*** 0.099*** 0.087*** 0.098***
[0.016] [0.016] [0.017] [0.016] [0.014]
Financial literacy 0.100*** 0.069*** 0.075*** 0.038*** -0.019***
[0.003] [0.003] [0.003] [0.003] [0.002]
Other control variables Yes Yes Yes Yes Yes
Intercept 0.251*** 0.140*** 0.222*** 0.126*** 0.073***
[0.026] [0.023] [0.022] [0.019] [0.017]
R-sq 0.274 0.253 0.190 0.120 0.068
N 25,000 25,000 25,000 25,000 25,000

21
 Empirical results (6)
Financial education at home & at school/work roles
• Estimation equation (2) for two sub-samples (IV approach)

Any Invest-
Foreign Crypto
Financial Stock ment
Currency Assets
Products Trust

(1) (2) (3) (4) (5)

Financial Education 0.142*** 0.164*** 0.158*** 0.132*** 0.144***
Had financial education at [0.020] [0.020] [0.021] [0.019] [0.016]
home (N=5080) Financial Literacy 0.074*** 0.041*** 0.058*** 0.008 -0.056***
[0.008] [0.008] [0.008] [0.008] [0.006]
Financial Education 0.229*** 0.213*** 0.224*** 0.198*** 0.172***
Had no financial education at [0.016] [0.017] [0.018] [0.017] [0.015]
home (N=19920) Financial Literacy 0.104*** 0.073*** 0.077*** 0.043*** -0.014***
[0.003] [0.003] [0.003] [0.003] [0.002]

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VII. Conclusions
• Financial education correlated with financial literacy
• Financial education at school/work raises likelihood of
holding all financial assets examined, including stocks,
investment trusts, foreign currency & crypto assets
• Still robust after controlling for potential endogeneity
• Financial education at school/work is more important
for holding financial assets for those who did not have
financial education at home
• Suggests that financial education at home to some
extent substitutes for financial education at
school/work; ideally should try to coordinate these
• Financial literacy also correlated with likelihood of
holding financial assets: positive for most types but
negative for crypto assets

23
Thank You!

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