Change in the Household Portfolio Management Behavior in an Aging Society, and its Implications

ABSTRACT

The “baby boomers” are approaching retirement, and Japan has become a full-fledged aging society. In 20 years time about half of Japanese households will be 60 years or older, pushing Japan’s aging society into a class of its own. It is not exaggeration to say that the financial portfolio management behavior of the elderly will dictate the movement of Japan’s entire financial assets. With stocks and mutual funds defined as risky assets and savings and trusts defined as safe assets, a look at the transition of the household assets holding ratio by age shows that the holding ratio of risky assets by 60 or older households is rapidly increasing. On the other hand, the holding ratio of safe assets, which beginning in the 40s has traditionally increased with age, is leveling off. Changes in the holding structure of risky/safe assets by age are added to future estimates of households by age, and the risky/safe assets holding ratio of all future households is estimated. A rapid increase in the risky assets holding ratio by Japanese households along with a substantial decrease in the safe assets holding ratio is predicted.

The progression of an aging society and changes in the portfolio management behavior of primarily elderly households will have a significant impact on the future state of financial institutions through change in the flow of funds structure. Estimating the financial asset balance composition of all households based on future estimates of the household holding ratio of risky and safe assets reveals a possibility that the weight of savings and trusts will significantly decrease while the weight of stocks and mutual funds will significantly increase. Financial institutions have drastically changed their old business models, and it is necessary to construct financial models centered on market-oriented financial transactions and develop two-way business aimed at both the assets and bonds of households and corporations. Even more so than in the past, the aging of Japanese society is forcing financial institutions to break away from traditional financial intermediary functions and to realize new financial functions.