The Financial Seminar for Tokyo Citizens: Understanding Finance from the Basics and Sustainable Finance was held on October 23 (Sat.), 2021 as part of Tokyo Sustainable Finance Week.
Japan's individual financial assets equal approximately 1,900 trillion yen, but stocks and other investments comprise only around 10 percent of those assets. Assets do not increase through deposits and savings alone because of the low interest rate, so increasing money through asset management will be important moving forward. Creating a flow toward investment from deposits and savings is important not only in forming one's own assets but also in the arena of Japan's sustainable growth beyond the pandemic.
This seminar is being held as a continuation of last fiscal year's and will provide easy-to-understand explanations of the basics and practical methods of sustainable financing (= financing to achieve a sustainable society) and investment. You can see the footage of the day on YouTube(Japanese only). Each speaker's materials(Japanese only) are also available.
Financial Planner (CFP® Certified by Japan Association for Financial Planners)
Ms. Kotona Kitano
■ Think about your life's financial plan!
Lifestyles are becoming more diverse and how much money a person spends will change depending on what he/she chooses in terms of finding jobs, getting married, having babies, and buying houses,. Let's think of a simplified example of spending and income before and after retirement.
There are three main types of spending before retirement: (1) living expenses (what one uses in daily life), (2) housing costs, and (3) education costs. Let's assume for this calculation that they are a dual income family that owns a home and has two children. If the husband makes 4.7 million JPY (face value of around 6 million JPY) and works for 30 years, and the wife makes 2.4 million JPY (face value of around 3 million JPY) and works for 20 years, this couple will have a lifetime income of around 189 million JPY. If we consider that (1) living expenses are 240,000 JPY per month; (2) total housing costs (including home purchase fees: deposit, loan repayment, and ongoing costs during ownership) come to 70 million JPY; and (3) education expenses come to 16 million JPY (8 million JPY for each child if they attend public schools); then the total they spend before retirement will come to 172.4 million JPY. The money left over comes to 16 million yen, but if the children go to private schools, no money may be left after the retirement.
Let's think about spending after retirement. We will base this on a 30-year period after age 60. As a couple who served in their companies for 40 years, their average monthly pension comes to 220,000 JPY. According to the Ministry of Internal Affairs and Communications, monthly living expenses for unemployed households of age 65 or over come to 270,000 JPY. In that case, around 30 million JPY will be necessary for those 30 years to cover the 50,000 per month difference. The challenge is how to secure the necessary funds after retirement.
■ Long-Term Asset Formation
In order to respond to the challenge of securing funds after retirement, it is necessary to think about asset formation from a long-term perspective. One key to long-term asset formation is asset management from early on. For example, if someone has 20 years until retirement and saves 30,000 JPY monthly, the total would be around 7.2 million JPY. If the money were invested with a 2% yield, that total would become 8.84 million JPY (before compound interest and tax). It is important to start asset management as soon as possible, even with just 10,000 JPY.
Spreading out asset management over time is also important. This can be seen in the Nikkei Stock Average's progress from 1981 to 2021 as stock prices rose and fell from time to time in the bubble economy period and following collapse, the Lehman crisis, etc. Rather than investing 1 million JPY all at once, for example, continually investing small amounts for 20 to 30 years would eventually become a profit.
Diversifying types of investment targets is also important. The four basic types are domestic bonds, foreign bonds, domestic stocks and foreign stocks. Bond prices tend to have relatively little fluctuation while stocks tend to fluctuate a lot. The Government Pension Investment Fund (GPIF), which manages Japan's public pension system, invests equally in each of these four areas. I hope that people will reference cases like that when diversifying investment targets.
Financial Partner and Representative from Financial Wisdom
Mr. Syunsuke Yamasaki
■ Investment Basics
Many people still have a negative image of investment, but investment is purchasing stocks and bonds with presently unused money which is then lent out to the national and local governments and companies. Companies use the money to develop new products, and the national and local governments will continue to build up infrastructure to move toward a richer society. He said that in this sense, investment serves the greater good.
At the same time, investment will be a major force in our asset formation. The three points in investments are: "long-term investments," "reserve investments," and "diversified investments." For example, even with the small amount of money it takes to buy a latte every day (about 370 JPY), if that accumulates for 40 years and the long-term investment yield is 5% per year, more than 17 million JPY assets could be formed. Trying to invest broadly around the world while taking risks into account is recommended.
■ iDeCo and Tsumitate NISA
When managing assets, people should use low-cost accounts with tax benefits: either the individual-type defined contribution pension plan (iDeCo) or the Nippon individual savings account (NISA). iDeCo is pension for old age that you reserve yourself. Three strong tax benefits it offers that make it an attractive choice are: (1) the contributions are entirely tax deductible, so income and resident tax can be reduced; (2) investment gains from financial products are usually subject to tax, but iDeCo's are tax exempt; and (3) tax benefits are also applied when receiving old age and pension benefits. However, he did also speak about one limitation: the money cannot be withdrawn before age 60, as it is a pension.
NISA, on the other hand, is a more valuable investment option versus investing in a regular securities account as investment gains are entirely tax exempt. There are currently two types of NISAs: "Ordinary NISA," where investing is tax free for up to 5 years with a limit of 1.2 million JPY/year, and "Tsumitate NISA," where investing is tax free for up to 20 years with a limit of 400,000 JPY/year. Tsumitate NISA is recommended to those considering investment for the first time.
■ How to Select Financial Institutions and Products
Since iDeCo and NISA are national systems, one may think that starting from any financial institution would be the same. However, because each financial institution has different portfolios of investment trusts, commission systems, etc., it is important to choose a financial institution first when opening an iDeCo or NISA account. I would like you to use a comparative search website run by an NPO, actually check the financial institution's website, and think carefully about one's first choice of partner.
Documents are needed when opening an iDeCo or NISA account, such as the obvious identity check, a My Number for NISA, and a Basic Pension Number for iDeCo. The process can usually be completed smoothly in a single transaction. Investment tends to seem to have high hurdles, but I hope that people will use iDeCo or NISA to take the first step and start a cycle of increasing their own assets.
After Ms. Kotona Kitano and Mr. Sunsuke Yamasaki's lectures, Ms. Tomu Muto (AKB48 member, weather forecaster, financial planner) joined them, and all three answered audience questions in a talk session.
■ Theme (1): How to Approach Investment From One's 40s and Beyond (Mr. Syunsuke Yamasaki)
Talk about long-term investment seems to be aimed toward young people, but the basic idea remains the same even for those in their 40s and 50s. However, because that period of life is when assets are formed to some degree and there are things to protect, people in this age group should be conscious of the balance between money to invest and money to reserve as term deposits. Seniors should face investing in the same way—as there is talk of life expectancy moving into the 100s, the viewpoint that they should try to stretch their own money reasonably through asset management is becoming increasingly important.
■ Theme (2): Knowledge to Keep in Mind when Investing (Ms. Kotona Kitano)
Many people who take the first step in investing then forget the risks and follow the returns, and as a result, they get into high-risk products and suspicious investment talk. Being aware that all financial products carry a risk is basic investment knowledge, and so is keeping in mind what would happen in the worst case.
■ Theme (3): How Beginners can Start Investing without Fear (Ms. Tomu Muto)
I think that fear about losing money is normal, but if one starts with a small amount of money like 1000 JPY, even if it goes down by 10% only 100 JPY is lost. Such a small amount could be thought of as a learning experience and make investing less scary. I also think that one's own money being involved naturally leads to studying asset management, and that increasing knowledge gradually would reduce fear and failures.
The second half of the seminar's content is in "Financial Seminar for Tokyo Citizens: Understanding Finance from the Basics and Sustainable Finance: Event Report (2/2)."
Produced by Media Business Division of Jiji Press, Ltd.