Speaker 1: Bloomberg Audio Studios, podcasts, radio news, This at All.
Speaker 2: Chizuko is a seventy six year old retyree who lives
Speaker 2: in the Japanese rural district of the Kui just north
Speaker 2: of Kyoto. Her daughter Ma is fifty five. Chizuko and
Speaker 2: my are pseudonyms that they've asked us to use for
Speaker 2: privacy because they're talking about their family's finances. They were
Speaker 2: interviewed by Bloomberg in October.
Speaker 1: So, Chizuko, she lives in, you know, one of the
Speaker 1: rural parts of the prefecture, kind of surrounded by by
Speaker 1: a lot of forestry and ricefield.
Speaker 2: That's Alice French, who covers the Japanese stock market out
Speaker 2: of Tokyo.
Speaker 1: She's been an active stock investor since she was kind
Speaker 1: of in her thirties or forties, So her finances are,
Speaker 1: you know, important to her. She she's built up quite
Speaker 1: a nice nest egg or, but she's a pensioner now
Speaker 1: and she relies quite heavily on those savings that she's
Speaker 1: built up.
Speaker 2: Like many Japanese families, the pair rarely talk about money,
Speaker 2: but recently Chizuko's downer heard something that pushed her to
Speaker 2: finally broach the topic of financial planning with her mind.
Speaker 1: My the daughter was telling us that she's kind of
Speaker 1: been hearing stories recently, one of which came from another relative,
Speaker 1: one of her relatives. Basically, their account was found frozen
Speaker 1: after they passed away.
Speaker 2: My said, the children of her elderly relative had no
Speaker 2: idea the account had been frozen. When it came time
Speaker 2: for them to handle the state, they were shocked to
Speaker 2: discover that they couldn't access their parents' money.
Speaker 1: And this kind of really triggered an anxiety for my
Speaker 1: you know, she's thinking, you know, her parents are also
Speaker 1: kind of getting to that age. They're relying on a pension,
Speaker 1: and obviously, you know, one never really wants to have
Speaker 1: to think about your parents kind of becoming able to
Speaker 1: handle things themselves, but it is a reality and something
Speaker 1: that you have to think about.
Speaker 2: It's a reality playing out all over the world as
Speaker 2: population's age and families plan for their futures. In Japan,
Speaker 2: home to the world's oldest population, there's a greater sense
Speaker 2: of urgency to the planning. That's because almost a third
Speaker 2: of the country, around thirty six million people, are over
Speaker 2: the age of sixty five.
Speaker 1: More and more seniors are now reaching that age where
Speaker 1: they might be experiencing dementia or you know, these kind
Speaker 1: of financial risks that come with aging, whether that be
Speaker 1: kind of rash purchases, sudden selling.
Speaker 2: In Japan, these financial risks aren't confined to small pocketbook issues.
Speaker 2: Seniors with symptoms of cognitive decline now control trillions of
Speaker 2: dollars in liquid assets. That's cash and investments in stocks,
Speaker 2: bonds and other securities. Assets that are at risk of
Speaker 2: being mismanaged are not being put to you in the economy.
Speaker 1: It's almost half of Japan's GDP that falls into this category.
Speaker 1: And you know, from health economists to think tanks to lawyers,
Speaker 1: all of the people that we spoke to are basically saying,
Speaker 1: as that pile of assets grows, it's going to slow
Speaker 1: down consumption, it's going to slow down markets, it's going
Speaker 1: to start impacting economic growth. It's kind of got to
Speaker 1: a level now where I think it's becoming difficult to ignore,
Speaker 1: and that's really started to raise alarm bells in Japan
Speaker 1: but also across other economies.
Speaker 2: This is the Big Take Asia from Bloomberg News. I'm Wanha.
Speaker 2: Every week we take you inside some of the world's
Speaker 2: biggest and most powerful economies and the markets, tyccoons, and
Speaker 2: businesses that drive this ever shifting region. Today, on the
Speaker 2: show Japan's Dementia Dilemma, a growing share of the country's
Speaker 2: financial assets are controlled by the elderly, many at risk
Speaker 2: of cognitive decline. Why that's a problem for everyone, not
Speaker 2: just Japan, and what the Japanese are doing about it.
Speaker 2: In Japan, older people have a lot of financial power.
Speaker 2: Those over sixty five control more than half of the
Speaker 2: fourteen trillion dollars in cash and securities held by Japanese households.
Speaker 2: But Bloomberg's Alice French says a big chunk of those
Speaker 2: liquid assets is held by people with dementia and cognitive issues.
Speaker 1: We understand from data from Sumitomo Mitsui Trust Bank that
Speaker 1: it's at around two trillion dollars, which is around three
Speaker 1: hundred and fifteen trillion yen. Now that includes people who
Speaker 1: have an actual dementia diagnosis, but it also encompasses people
Speaker 1: with something called mild cognitive impairments. Now, this is usually
Speaker 1: something that comes in kind of in the years before
Speaker 1: you might get in a dementia diagnosis, you know, sort
Speaker 1: of from the age of sixty five onwards, many older
Speaker 1: people do start to experience kind of lapses in memory,
Speaker 1: you know, struggling with judgment and things like that, and
Speaker 1: just kind of overall cognitive decline.
Speaker 2: People may develop cognitive decline in dementia due to a
Speaker 2: variety of factors, including genetics and lifestyle choices, but age
Speaker 2: is the strongest known risk factor, with research showing that
Speaker 2: the risk of developing dementia rises after sixty five. In Japan,
Speaker 2: the population of elderly with cognitive decline is growing fast,
Speaker 2: and Alice says there are big financial risks associated with
Speaker 2: what some are calling dementia money.
Speaker 1: I've heard stories of seniors with dementia or kind of
Speaker 1: cognitive issues, for example, suddenly donating huge amounts to charities
Speaker 1: that they love, or you know, buying into into schemes
Speaker 1: that it's not necessarily scamming, but it's sort of just
Speaker 1: perhaps what one would describe as ill advised spending. It
Speaker 1: can also creep in in ways like missed bill payments
Speaker 1: that obviously affects credit scores, and then kind of on
Speaker 1: a bigger scale, you know, obviously fraud is a huge problem.
Speaker 1: We know that in Japan over sixty percent of financial
Speaker 1: scams in twenty twenty four were targeted at over sixty fives,
Speaker 1: which is pretty staggering. The older population is seen as
Speaker 1: more vulnerable to this, and of course that's only exacerbated
Speaker 1: if you have dementia or some you know, cognitive issues.
Speaker 2: Financial firms can freeze accounts or place limits and restrictions
Speaker 2: on them if they identify what they considered to be
Speaker 2: erratic spending patterns. Research from Tokyo's Kale University shows that
Speaker 2: about eleven percent of adult children who take over their
Speaker 2: elderly parents' finances have found those accounts frozen.
Speaker 1: In terms of how they're actually implemented these freezes, it
Speaker 1: really does vary from sort of company to company and
Speaker 1: from bank to bank. One of the firms that we
Speaker 1: spoke to said that their staff make annual visits to
Speaker 1: clients who are aged over seventy five instead of judges
Speaker 1: their cognitive ability is now. Of course, you know, in
Speaker 1: most of the cases these sort of securities firms employees
Speaker 1: they don't have a medical background, and instead of having
Speaker 1: to just use their best judgment, obviously one would assume
Speaker 1: with the client's best interests, you know, at heart, but
Speaker 1: it is a very difficult judgment.
Speaker 2: Called money in a frozen account can't be stolen by
Speaker 2: a scammer or squandered by an older person who might
Speaker 2: not understand how they're spending. But it can't be accessed
Speaker 2: by the account holder's children either, and that's a problem.
Speaker 2: They might need that money to pay for their parents' care,
Speaker 2: and if they can't access it, they might end up
Speaker 2: paying for that care themselves. The accounts can be unfrozen,
Speaker 2: but that can be a long bureaucratic process, and it
Speaker 2: doesn't always happen. In some cases, money in those frozen
Speaker 2: accounts is not claimed at all and ends up in
Speaker 2: the hands of the government.
Speaker 1: So that means that a lot of this money ends
Speaker 1: up doing whether it's in cash piles unde seni as
Speaker 1: mattresses at home, or whether it's sitting in bank accounts.
Speaker 2: Alice says this growing pile of dormant dementia money has
Speaker 2: implications for Japan's economic growth. Japan is struggling to boost
Speaker 2: its economy after decades of deflation. The country needs its
Speaker 2: people to spend that money, not let it sit idle
Speaker 2: in frozen or dormant bank accounts.
Speaker 1: One of the think tanks that I spoke to for
Speaker 1: the story, for example, had this stat that said that
Speaker 1: if the kind of dormant money the over sixties are
Speaker 1: sitting on, if only zero point two percent of that
Speaker 1: money was actually actively spent, it could boost GDP by
Speaker 1: one percent.
Speaker 2: There's an irony here. Some banks are worried that their
Speaker 2: older customers might be taking too many risks with their money.
Speaker 2: Some corporations, on the other hand, are concerned that their
Speaker 2: older investors might not be taking on enough risk. Forty
Speaker 2: two percent of retail investors in Japan or over sixty.
Speaker 2: Alice says if those people become too risk averse as
Speaker 2: the age, that could affect a company's liquidity and even
Speaker 2: its corporate strategy.
Speaker 1: If a big chunk of your shareholders, for example, have
Speaker 1: dementia or are either unable or unwilling to kind of
Speaker 1: actively use their shareholding rights, that can get in the
Speaker 1: way of acquisition deals, That can get in the way
Speaker 1: of things like corporate governance decisions.
Speaker 2: She says, it's becoming a big issue for family owned companies.
Speaker 2: More than ninety percent of businesses in Japan are family owned,
Speaker 2: and over half of companies are run by people aged
Speaker 2: sixty and older. This all adds up to a looming
Speaker 2: issue for corporate Japan.
Speaker 1: For example, if the founder is still the majority shareholder
Speaker 1: but maybe has dementia or is just aging and is
Speaker 1: unable to use those shareholder rights. M and A deals
Speaker 1: have been collapsing. You know, you can't even do something
Speaker 1: as simple, for example, as appointing a new board member
Speaker 1: if you can't get a majority shareholder approval. And of
Speaker 1: course this is all happening against the backdrop of Japan
Speaker 1: trying to push forward with corporate governance with better capital efficiency.
Speaker 1: We've got an M and A boom that's continuing here
Speaker 1: and is expected to boom even more in twenty twenty six.
Speaker 1: So this kind of is I think a real tangible
Speaker 1: risk and that will start to have I think a
Speaker 1: rippling effect across the markets and across lots of different
Speaker 1: asset classes.
Speaker 2: What is Japan's government doing to protect its aging investors
Speaker 2: and how does it plan to tap into those dormant
Speaker 2: trillions that's after the break. Japan's population is aging faster
Speaker 2: than any other in the world, and the number of
Speaker 2: Japanese people with dementia is growing fast too. That makes
Speaker 2: the problems that with having assets controlled by people living
Speaker 2: with cognitive issues hard to ignore. Luombrig's Alice French says
Speaker 2: that Japanese government is taking action that includes reviewing Japan's
Speaker 2: guardianship law. Similar to power of attorney in the US.
Speaker 2: The law allows family members to take legal control of
Speaker 2: a relative's finances if dementia sets in.
Speaker 1: Only around five percent of dementia suffers in Japan right
Speaker 1: now are using that system, and the government would like
Speaker 1: to boost that now. It seems that one of the
Speaker 1: main reasons that people are a little bit wary of
Speaker 1: using the system right now is that once you're in it,
Speaker 1: once you sign on for this guardianship system, you can't
Speaker 1: get out. That does kind of put off some people
Speaker 1: who might, for example, change their mind. So the government
Speaker 1: is looking at the possibility of bringing in that option
Speaker 1: that you could withdraw at a later stage once you're
Speaker 1: in it, and they hope that that kind of new
Speaker 1: level of flexibility will bring more people into the guardianship system.
Speaker 2: Alice says the committee reviewing changes to the existing law
Speaker 2: could propose amendments as soon as this year, but it
Speaker 2: could take years for those changes to take effect. Until then,
Speaker 2: banks and securities firms are coming up with their own
Speaker 2: solutions to ensure that their elderly clients' assets are protected,
Speaker 2: and some older people alert to their circumstances are working
Speaker 2: with them. Chizuko and Mi, who we met at the
Speaker 2: beginning of this episode, had a frank conversation about Chizuko's
Speaker 2: financial situation. They decided that Chizuko would make My a
Speaker 2: guardian of a special family support account offered by a
Speaker 2: local securities firm. Now, if Chizuko is unable to manage
Speaker 2: her finances, My can make decisions on her behalf.
Speaker 1: I think in many ways, this Moldota couple were kind
Speaker 1: of a best case scenario, and the challenge here is
Speaker 1: kind of scaling them to be the majority. The sense
Speaker 1: that I've got for sure is that the finance industry
Speaker 1: is rarely kind of out the forefront of sort of
Speaker 1: this issue forwards and raising the awareness. So Ima Murdo,
Speaker 1: who I spoke about, which physical uses, they were very
Speaker 1: frank with us, you know. They were telling us that
Speaker 1: they've seen a spike in in fraud and scams, particularly
Speaker 1: amongst their elderly clients, and they really want to kind
Speaker 1: of crack down on that because it's a risk for
Speaker 1: them too, and in recent years, they have started, like
Speaker 1: I say, bringing in these kind of solutions for their
Speaker 1: senior clients so that they can manage their assets alongside
Speaker 1: a younger family member. So these family support accounts are
Speaker 1: kind of gaining traction. There's another company called Kagawa, which
Speaker 1: is on Hikoku, one of the sort of more southern
Speaker 1: islands of Japan, which has brought in a similar system
Speaker 1: just in the last set of eighteen months or so
Speaker 1: and has said that they've been surprised by the amount
Speaker 1: of demand. The steps are gradual and small at this stage,
Speaker 1: but there's definitely a sense that momentum is building.
Speaker 2: And companies are beginning to look for ways around the
Speaker 2: issues that come with having too many older shareholders. Japanese
Speaker 2: telecoms provider MTT found in twenty twenty three that almost
Speaker 2: half of its shareholders were aged over seventy. The company
Speaker 2: solved the problem with the stock split, which had the
Speaker 2: effect of diversifying the age of its shareholders.
Speaker 1: So NTT, for example, did a twenty five for one
Speaker 1: stock split in mid twenty twenty three, and they've now
Speaker 1: seen the proportion of over seventies among their shareholders down
Speaker 1: below twenty percent. So in that sense, it was pretty effective, right,
Speaker 1: and we've seen stock splits kind of shooting up over
Speaker 1: the past few years. There are lots of reasons for it.
Speaker 1: It's partly because of the sort of corporate governance drive
Speaker 1: and the drive for better shareholder returns. Of course, if
Speaker 1: you can attract younger shareholders, they'll hold your stock for longer.
Speaker 2: But Alice says, one of the biggest challenges is the
Speaker 2: lack of awareness of this looming financial dilemma.
Speaker 1: It is quite a taboo topic and it's one of
Speaker 1: the biggest challenges that we found actually in trying to
Speaker 1: report on this theme, right, is that a lot of
Speaker 1: people don't really want to talk about it. It is
Speaker 1: a bit of a touchy subject. And I think that's
Speaker 1: not just in Japan. I think all across the world.
Speaker 1: Part of the problem is almost a kind of unwillingness
Speaker 1: to want to confront your own weaknesses. We know that,
Speaker 1: you know a lot of market players across the world
Speaker 1: obviously fall into the over sixty five category, and nobody
Speaker 1: kind of wants to think that they might not be making,
Speaker 1: you know, the best financial decisions on the day to day.
Speaker 1: So I think there is definitely that resistance there to
Speaker 1: kind of confront the reality people don't necessarily want to
Speaker 1: think of themselves potentially losing independence in the ability to
Speaker 1: handle things by themselves and having to rely on their kids.
Speaker 2: That's if they have children to rely on. More seniors
Speaker 2: are living alone in Japan. A government study estimates that
Speaker 2: by twenty fifty, as many as twenty percent of Japanese
Speaker 2: households could be occupied by elderly people living alone and
Speaker 2: potentially handling their finances without any support. That means the
Speaker 2: burden would all tutimately fall on the government and the
Speaker 2: financial industry. Japan is working hard to find solutions, and
Speaker 2: the world is paying close attention. That's because dementia and
Speaker 2: cognitive decline are beginning to take a toll on economies
Speaker 2: across the world.
Speaker 1: In the US, around six trillion dollars could be owned
Speaker 1: by dementia sufferers in the States right now. Now, that
Speaker 1: is not a number to sniff at, and obviously that's
Speaker 1: something that again is only going to grow as the
Speaker 1: population continues to age. South Korea, another Asian nation that
Speaker 1: is often in the headlines for its aging population, over
Speaker 1: one hundred billion dollars held by dementia sufferers a lot
Speaker 1: of that in illiquid real estate.
Speaker 2: There's a lot of talk about the rising tide of
Speaker 2: dementia in Japan's population, and a lot of worry about
Speaker 2: the knock on effect that this dementia money is having
Speaker 2: on economic growth. But Alice says she's not seeing much
Speaker 2: in the way of solutions.
Speaker 1: I think for me, what surprised me, or I suppose
Speaker 1: worried me the most, was kind of how haphazard the
Speaker 1: solutions are at this stage. So for the financial industry,
Speaker 1: they are desperately trying to get a handle on a
Speaker 1: problem that I think has somewhat crept up on them.
Speaker 1: You know, there is no overarching playbook about how to
Speaker 1: deal with this. The pace of aging in Japan is
Speaker 1: so fast, and I think a lot of people didn't
Speaker 1: really think about the risks that will then come with
Speaker 1: that from the financial side.
Speaker 2: This is The Big Take Asia from Bloomberg News. I'm wanha.
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