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Can Financial Literacy Explain Lack of Investment in Risky Assets in Japan?

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  • Mostafa Saidur Rahim Khan

    (School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Hiroshima 739-8525, Japan)

  • Naheed Rabbani

    (Department of Banking and Insurance, University of Dhaka, Dhaka 1000, Bangladesh)

  • Yoshihiko Kadoya

    (School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Hiroshima 739-8525, Japan)

Abstract

Although household savings in Japan are among the highest in the world, investment in risky assets is still very low. This study examines whether financial literacy explains the lack of investment in risky assets in Japan. We use data from the Preference Parameter Study, a nationwide survey in Japan that has been conducted by Osaka University. We use investment in stocks, investment trusts, futures/options, Japanese government bonds, government bonds of foreign countries, and foreign currency deposits as a proxy for investment in risky assets. Our results show that investment in risky assets is higher among financially literate people. Moreover, financial literacy has a significantly positive association with investment in risky assets even after controlling the demographic, socio-economic, and psychological factors. We check the robustness of the association between financial literacy and investment in risky assets by segregating investment in risky assets into investment in equity securities and investment in bonds and foreign currencies. Financial literacy is found to be associated with both investment in equity securities and investment in bonds and foreign currencies. Our results are also robust in terms of the endogeneity issue. The results imply that investment in risky assets in financial markets could be increased by introducing financial literacy programs at a mass level.

Suggested Citation

  • Mostafa Saidur Rahim Khan & Naheed Rabbani & Yoshihiko Kadoya, 2021. "Can Financial Literacy Explain Lack of Investment in Risky Assets in Japan?," Sustainability, MDPI, vol. 13(22), pages 1-12, November.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:22:p:12616-:d:679603
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    Cited by:

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    2. Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2023. "Who Became Victims of Financial Frauds during the COVID-19 Pandemic in Japan?," Sustainability, MDPI, vol. 15(4), pages 1-17, February.
    3. Yoko Mimura, 2023. "Save Today for a Happier Tomorrow: Associations Between Happiness and Financial Preparation in Japan," Journal of Happiness Studies, Springer, vol. 24(3), pages 1261-1281, March.
    4. Naheed Rabbani, 2023. "Financial Conditions and Borrowing Behavior of University Students during the COVID-19 Pandemic: Evidence from Bangladesh," Sustainability, MDPI, vol. 15(19), pages 1-16, September.
    5. Isidore, Renu & Arun, C. Joe, 2023. "The Moderating Effect of Financial Literacy on the Relationship Between Decision-Making Tools and Equity Returns in the Indian Secondary Equity Market," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 15(1), pages 185-211, January.

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