People who possess a greater understanding of finance are less likely to worry about money as they get older, according to a new Japanese study.
The study’s findings suggest that financial literacy — the ability to understand how money works — enables people to accumulate more assets and income during their lifetime, which increases confidence for the years ahead.
Financial literacy also seems to engender a greater perception for risk and enables those who have it to face off dilemmas in old age with ease, according to Drs. Yoshihiko Kadoya, an associate professor at Hiroshima University and Mostafa Saidur Rahim Khan of Nagoya University.
For their study, the researchers asked people across Japan to answer questions assessing their calculation skills, understanding of pricing behavior, and financial securities, such as bonds and stocks.
They were also asked about their accumulated wealth, assets, and lifestyle and to rate the level of anxiety they felt about life beyond 65.
The study suggests that financial literacy is not particularly high throughout Japanese society, and that men, and those with a higher level of education are more financially clued-in than women, and those with less education.
The conclusion is that the more financially literate earn and accumulate more during their lifetime — which means they worry less about growing old.
It also appears that financial literacy helps shape people’s perception towards risk and uncertainty, making them more capable and confident in tackling whatever problems life throws at them, the researchers said.
According to Kadoya, financial literacy increases our awareness about financial products, builds a capacity to compare all available financial options, and changes our financial behavior — all of which bodes well for our perceptions of and actual experiences during our senior years.
While financial literacy taken alone was seen to reduce anxiety, its affect was heightened by other factors, the researchers noted.
Married respondents had even lower levels of anxiety about growing old than financially literate singletons. This could be because married couples plan more effectively for the future due to responsibilities to the family, the researchers said.
Age also plays a significant role, with anxiety levels peaking around 40, according to the study’s findings.
The researchers suggest that people at this age have the most home and workplace responsibilities, but with less money and time to support them, increasing anxiety about the here and now — and the journey ahead.
As people get older, their anxiety levels drop off on gaining access to social security, government-funded health care, and pensions, the researchers noted.
Having dependent children, on the other hand, increased anxiety levels, the study found.
The findings should have implications for Japan and other countries where retirees account for a large and rapidly growing share of the population, according to the researchers.
And while Japan has a universal pension system, its benefits depend on an individual’s ability to pay throughout their working life. As in much of the developed world, it is increasingly perceived that a pension is insufficient for daily expenses without a backup pool of savings and assets, putting the financially literate at a distinct advantage.
According to Kadoya, the responsibility for fixing this lies with the government.
“People shouldn’t spend time worrying about the future,” he said. “That is why governments provide pensions, housing, and medical plans. If the perception is that these are not fulfilling their purpose, then governments and providers need to look at making them more accessible. If people are still worried, then we need to look at educating people about these services that are supplied for their needs.”
Source: Hiroshima University