Low Fertility, Human Capital, and Economic Growth: The Importance of Financial Education and Job Retraining

By Clark, Robert; Matsukura, Rikiya et al. | Demographic Research, July-December 2013 | Go to article overview

Low Fertility, Human Capital, and Economic Growth: The Importance of Financial Education and Job Retraining


Clark, Robert, Matsukura, Rikiya, Ogawa, Naohiro, Demographic Research


Abstract

BACKGROUND

International research has shown that workers have a rather low level of financial literacy. Financial literacy is associated with lifetime planning and saving for retirement. This article focuses on the role of financial literacy in the demand for human capital and on-the-job training among older workers in Japan. Workers with higher levels of financial literacy are more likely to demand human capital, plan to enter training programs, and desire to work after retirement.

OBJECTIVE

Does financial literacy affect the demand for additional human capital among older Japanese workers? How does the level of financial literacy affect the age of retirement and plans for working after retirement from a career job in Japan?

METHODS

This paper analyzes data from a national survey of Japanese employees. We estimate the effect of financial literacy on the demand for additional human capital to remain competitive for promotions and for finding employment after retirement.

RESULTS

Higher levels of financial literacy are associated with greater demand for additional human capital and for participation in on-the-job training programs among older workers in Japan.

CONCLUSIONS

Given the rapid aging of the Japanese population and the decline in the total population, providing employment opportunities for older workers (ages 60 and older) is a key to sustaining economic growth and per capita income. The analysis indicates that greater levels of financial literacy are associated with a desire for more training and human capital. Thus, enhancing the level of financial literacy among older workers may be a key to maintaining economic wellbeing.

1. Introduction

For the past 30 years, Japan has had one of the lowest fertility rates in the world. Over the past decade, the total fertility has hovered around 1.3 births per woman. As a result of this long-term trend in fertility, Japan now has one of the oldest populations in the world and the absolute size of the population has begun to decline (Ogawa et al. 2012). In this demographic environment, sustained economic growth depends in large measure on the continued participation of older workers in the labor force and their ability to maintain or even increase their productivity.

In this paper, we explore the demand for additional education or training and the acquisition of new marketable skills by older Japanese workers. Our analysis indicates that over half of workers aged 40 to 59 believe that they need additional training and skills to continue working on their current job, to have prospects for promotions, and to be competitive for employment after they leave their career job. The demand for further training to enhance job market opportunities is shown to be related to the level of financial literacy. This is not surprising since acquisition of human capital is a form of investment which requires the individual to understand the cost and benefits associated with the allocation of time and resources to acquire additional human capital.

The level of financial literacy has been shown to be relatively low in many countries and the lack of financial knowledge results in suboptimal consumption/saving decisions and in retirement planning (Lusardi and Mitchell 2011b). This paper is unique in its attempt to link financial literacy to important aspects of investment in additional education or training and other aspects of human capital. Using information contained in the 2010 Nihon University Population Research Institute National Survey on Work and Family, we examine the linkages between financial education and demand for human capital investment among older Japanese and assess the importance of this investment to economic growth for Japan. The linkage between financial literacy and the demand for investment in human capital is important for workers in order to maintain their competitiveness in the labor market. …

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