A bad idea that just won't die
Japan is sitting on $14tn in financial assets, nearly 5x the GDP of France.
Its government believes that by leveraging financial literacy programmes, it can convert those dormant savings into dynamic investments, unlocking significant economic potential.
Unfortunately it will fail.
"Improving financial Literacy improves financial outcomes". This idea seems to resurface every time a large organisation (in this case the Japanese Government) wants to shift consumers' financial behaviour from one direction into another.
Although always well meaning (well, nearly always), financial literacy/education is the go-to initiative every time, and every time it fails to deliver the outcome it promises. Why?
Because it fundamental fails to understand why consumers make the financial decisions they do.
An individual's money is not some innate object. It's complex concept wrapped up in early life experiences, heuristics, and ongoing cognitive feedback loops that we develop as we go about our daily business.
In short we each have our own very personal relationship with money.
Most people are unaware of this relationship and the role it plays in their money behaviours.
Seeking to improve their situation they then engage with financial literacy / education tools, which focus on the "how?" rather than the "why?". As they try and adopt these practices they smash into their personal relationship with money and get stuck. This blocker compounds their sense of failure and inadequacy with money. Convinced they are the problem they perceive they’re falling further and further behind and this increased pressure forces the cycle to repeat itself.
The evidence is clear. Over the last two decades the consumer finance industry has invested hundreds of millions into financial literacy programs to try to “educate” people out of poor financial decision making. However a meta-analysis looking at 201 studies measuring the impact of these financial literacy interventions on financial outcomes found that they only explained 0.1% of the variance in financial behaviours of the test participants (interestingly it also found that for low-income individuals this educational service had an even weaker correlation).
If we really serious about improving people's financial situation we need to stop thinking they need another pensions or debt explainer and recognise that what they need is help in understanding and improving their relationship with money.
This will allow them to overcome their negative cognitive feedback loops and put themselves in a position to achieve their ambitions.