Japan is encouraging its young people to invest in the stock market through a plan to expand an existing tax-free investment program that targets citizens aged 20 and above.
The aim is to move household funds from the banks to the stock markets, which provide higher returns. Young Japanese in the 20-to-30 age range make up less than nine per cent of the one trillion yen in the Nippon Individual Savings Account (NISA) program.
Japanese are not too keen on stock investment since only 14 per cent of the country's household financial assets are in stocks or investment trusts. In comparison, 45 per cent of financial assets of U.S. residents are invested in stocks and trusts whole Europeans registered a 24 per cent exposure, according to data from the Bank of Japan.
The first move is for the Financial Services Agency (FSA) to request that NISA expand its program to those below 19 and increase the yearly investment cap to 1.2 million yen from the current 1 million yen.
If the NISA will approve the FSA request, families would be able to purchase shares on behalf of their children who are 19 or below, but the annual limit for the junior NISA account will be 800,000 yen.
The tax-free incentive on the current NISA program allows account holders to buy up to five million yet of stocks and investment trusts without being charged levies on dividends or profits, but the purchase has a one million yen yearly cap.
However, NISA has been attracting more the older Japanese with 60 per cent of its accounts owned by people above 60 years old and only 3.2 per cent by Japanese in their 20s.
Convincing young Japanese to place their money in the stock market, however, would take more than tax-free incentives. The youth must first understand the role of capital build-up via the stock market, the lower yield of bank deposits and how to benefit from buying stocks.
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