Social changes in the United States that forced people to invest

Generally speaking, the Japanese like saving and do not like investing. In fact, about 52% of individual assets in Japan consist of deposits and savings, and about 15% are invested assets. In contrast, about 14% of individual assets in the United States are deposits and savings, and about 51% are invested assets. The two countries are showing opposite trends.

This does not mean that Americans like investing.

In fact, Americans used to think that investing was like gambling and they mainly held deposits like Japanese households do today.

However, from the 1980s, there have been major changes in American society. It was the period known as “Japan as Number One,” when Japanese companies were making great progress all over the world.

Especially in the United States, the Japan‐U.S. trade friction became a big problem, and companies encountered difficulties. Naturally, the employment situation became unstable, and the life plan of Americans, which had been considered to be secure as long as they worked for a large company, was seriously disrupted.

Meanwhile, define contribution plans, which are self-directed, gradually replaced traditional pensions plans, and investor education advanced. In other words, Americans realized that they would have a hard time by relying on the government or employers financially and started visualizing asset accumulation choices to prepare for their own futures.

However, there were not that many choices. They could either increase their monthly pension contributions, change their life-style so that they can manage with less pension benefits, delay their retirement age, or start contributing early and invest aggressively. In the end, Americans had to invest. I think that the current data shows the result.

Conversely, in Japanese society, from the period of rapid economic growth after World War II through the 1980s known as “Japan as Number One” and boosted by the bubble economy, the Japanese were able to enjoy various social security such as pension benefits automatically deducted from their salaries without having to think about money on their own. Also, they could make a deposit with banks that paid plenty of interest.

However, in the 1990s, the bubble economy collapsed, and Japan entered a period of almost no growth. Also, the declining birthrate and aging population became a major problem.

Until then, money had been left to the government and companies, but the system was designed on the assumptions that there would be economic growth and lifetime employment, and the working-age population would support the elderly.

Since the burst of the bubble economy, these assumptions have collapsed, and the system can no longer be maintained as it was.

In other words, just as Americans have had to invest since the 1980s, we are now in a situation where we have to take some measures. But as far as the data shows, there is no such change. Why?

Investment is not only asset management but also social engagement

For one thing, Japan still has limited opportunities to learn about money while American society has aggressively increased such opportunities. 

To begin with, in Japan, there is a kind of culture that considers talking about money as a poor manner. This may be one of the reasons why opportunities to learn about money do not increase.

As a result, the Japanese are unable to acquire knowledge about money and to dispel the false image of investment and asset management as unearned income.

In short, asset management is about evaluation. You have collect and analyze information not only within Japan, but all over the world. Producing information 24 hours a day is not even enough to properly manage assets.

However, people have a negative image of unearned income, because they still have an old-fashioned sense that leaving money with banks would automatically generate lucrative interest.

In the first place, financing literally means providing money. The basic mechanism is to transfer the surplus money to someone who has a shortage, and if the recipient grows and makes a profit, a part of the profit is returned to the provider. If you misjudge where to finance, you will not get your money back. However, if you limit your investment to where you can get a solid return, you will get a lower return.

The important thing about this mechanism is that in order to obtain more returns, you need to select companies that will grow further and your investment will support companies that will lead the way to the next generation.

In fact, without such activities, new companies will not grow, and the development of society will not progress.

In other words, investment means increasing one’s own assets and engaging in society by supporting newly growing companies.

While Western countries provide education that enables people to understand and act on these ideas, such an education in Japan is still limited.

Rather than simply learning about finance as knowledge, we need to be able to apply our knowledge considering how our actions affect us and society, what choices we have for ourselves and society, what are the strengths and weaknesses of each choice, what is the most realistic option at the present time, and what assumptions should change our behavior.

In my lecture, I ask my students to start with thinking about these points as their own affairs.

Another reason that individual investment has not increased in Japan may be that, although it temporarily flourished during the bubble economy period, people suffered from its burst and have become more nervous about investing since then.

This may be why some believe that investments are like a gamble that can make a lot of money or lose a lot of money.

However, it has already been about 30 years since the collapse of the bubble economy. In the meantime, as I mentioned earlier, Japanese society has changed greatly. Due to low growth and the declining birthrate and aging population, various conventional systems are failing to function. I would also like you to pay attention to the fact that while Japan is stalling, its relative power compared to other countries, which have continued to grow, is changing.

In other words, rather than passing on the painful bubble economy experiences, it is more important to tell people that mechanisms are being developed for beginner investors starting to invest, such as accounts to encourage long-term, diversified, dollar-cost averaging investment. As one of the purposes of investment is to support companies leading the way to the next generation, you may invest in overseas companies as well.

People who have invested in both domestic and international growth, such as individuals in the United States, are increasing their assets by exploiting both earned income and investment income. This is because their relative asset value will decrease if they cannot keep up with inflation. If you only looked at Japan, which has been in deflation for a long time, you might not be worried about this, but I would like you to shift your attention to these overseas trends.

With the 100-year life, the way we plan our lives has changed.

People’s lifestyles have diversified, and other than just working for one company due to the traditional life-time employment system, various life plans are available such as taking temporary leave from school to study abroad, attending university while working, or quitting a job to start a business.

However, the social system has not caught up with such diversification. You need to prepare the funds to realize your life plan through your own efforts. If you find it difficult or unpleasant, you may not be able to live the way you want.

If you choose to give up what you want and continue working for a company so that you can receive a large retirement benefit, you are putting the cart before the horse.

Learning how to manage your assets also teaches you how to put your life plan into practice.

Learning about money is an opportunity to expand the world and to think about oneself

I consider money as a means to quantify the value of all things. 

For example, the stock price of a new company can remain high even though it has been in the red. This is because people expect the company to have the potential to carve out a path to a new era and find value in it.

It is difficult to describe their expectations and values in words, but the stock price expresses them in numbers.

Therefore, such numbers can be considered as a means of communication. There are unspoken exchanges such as “Look out for that company,” “I cannot wait,” and “It may change society,” and you can get to hear these voices.

Also, numbers can easily overcome language barriers. Accordingly, acquiring knowledge of finance gives a similar feeling to that when Japanese people learn English and become able to read, write and speak, the amount of information has increased dramatically, and the world has expanded rapidly.

I do not think everyone has to engage in asset management. The important thing is to think about asset management properly. To think properly means comparing choices you have and finding the most realistic method among them. If you wait for the ideal option, you may miss opportunities. With this in mind, if you think you do not need to manage your assets, you do not have to force yourself to do it.

However, if you are interested in what I have talked about here, I recommend that you try managing your assets little by little at your own pace.

Even if you have no knowledge, there are materials for beginners on the Siruporuto (the Central Council for Financial Services Information) and the websites of financial associations. There are also seminars. Although some explanations are so easy that even elementary school students can understand, I recommend these tools because they provide summarized primary data of the financial industry, known as “Namamono (indicating that information becomes meaningless if it is not the latest).”

Once you obtain a basic knowledge, check if your workplace provides an asset management plans. This is because many companies offer employee-friendly plans as a part of their employee benefit. In addition, manageable accounts for beginners, such as NISA and iDeCo, have become available recently. These accounts are a good place to start.

As you gain more knowledge, you can continue to use NISA or iDeCo, depending on your life plan, or take on the next level of investment with advice from a financial professional.

But no matter how good a financial professional is, he/she cannot read your goal or intention. These are things you must clarify for yourself. In other words, it is important for you to set your goal for your asset management, and become able to explain exactly at what pace you want to proceed and to what extent you can take risks.

Based on whether it is for your retirement fund or for your independence in five years, asset management will change completely. Asset management should be designed to meet your goals.

If you learn to do this, money will help you to have the life you want to live. I hope you will continue to be interested in money so that Japan will become a society where you can extend your range of choices.

* The information contained herein is current as of July 2020.
* The contents of articles on are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.

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