Q. If you have a borrowing of 100,000 yen with a compound annual interest rate of 20%, how many years will it take for the balance to double if you don’t make repayments?

This is one of the questions from the “Financial Literacy Quiz” conducted by the Financial Services Agency in Japan. In recent years, the importance of learning about money has been reassessed due to the increasing economic burden caused by the pandemic and the rise in inflation rates driven by the Ukrainian situation. Especially in the United States, where approximately 43 million people (1 in 8) carry student loans, there is a growing demand for improved financial literacy among young generations.

Currently, 23 states in the United States have introduced financial education into high school curriculum. Similarly, in Japan, starting from this April, “financial education” has been included in high school home economics classes, following the reduction of the legal adult age from 20 to 18 years old. Students will be taught about financial products such as stocks, bonds, and investment trusts from the perspective of asset formation.

In addition to schools, the avenues for learning have diversified with the availability of podcasts, apps, and more. The New York Fed offers a manga-style educational material on finance that can be downloaded for free.

As financial education gradually becomes more widespread, it is important to consider how we can protect our own money. This week, we want to share the perspectives of three individuals from Generation Z on how they approach their finances.

It’s been eight months since I started living a completely cashless life. While in Japan, I used only credit cards, but now, to prevent overspending, I primarily use a debit card. I put the budget for the month into the account and manage my expenses accordingly. However, when I review my statements, I still find some unfamiliar expenses, and it becomes challenging to identify them.

Undoubtedly, expenses tend to accumulate unavoidably. I want to manage them better. To “spend money wisely,” the first step is to understand your own expenses, particularly the necessary ones. The next challenge is budgeting and keeping records. As someone lazy about record-keeping, I always want to avoid the hassle. While Money Forward and Zaim are extremely popular in Japan for household budgeting apps, Personal Capital is dominant in the West. Personal Capital is an app that allows users to link and manage their bank accounts, brokerage accounts, credit cards, and loans in the free plan. If you want to grow your assets rather than just saving, this app is perfect for visualizing your financial moves. Considering budget planning and expense records as part of asset management might be a significant key to “smart money management” in the future.

As a side note, even in “smart ways to spend money,” I want to emphasize the importance of “not being too hard on yourself” and “continuing to learn.” This might apply to various aspects of life, including money. Being overly strict in managing things might not lead to consistent results. Even in today’s society where financial literacy is gradually improving overall, I want to learn and use money in a relaxed and enjoyable manner.

My bank account feels like a leaky tank, with the balance constantly decreasing. Especially recently, living overseas has become tougher due to the weak yen. I want to cut down on unnecessary expenses as much as possible.

However, temptations and pitfalls are abundant and nearby. For instance, the global spread of “Buy Now, Pay Later” (BNPL) with the rise of online shopping.

True to its name, BNPL allows you to get what you want immediately, even if you don’t have the cash at hand. There are no strict pre-screening processes like credit cards, and the interest on installment payments is often (but not always) zero, making it particularly popular among young age groups.

Predictions suggest that the global transaction volume for BNPL will reach $438 billion by 2025 (compared to $157 billion in 2021), indicating a growth potential. However, as a consumer, there are many points to be mindful of.

Particularly concerning is the risk of falling into excessive debt beyond one’s real purchasing capacity. In fact, a survey of about 1,000 American consumers found that nearly 40% of BNPL users have delayed payments at least once.

Late payments not only result in penalties from the companies but may also negatively impact credit scores.

While asset formation often receives attention as a proactive approach, a balanced “defensive” approach that involves mindful purchasing behavior will become increasingly important amidst the developments in payment methods.

When I become a working adult, maybe I’ll give investing a try.

As a college student, the concept of “investment” seems vague to me.

However, the need for more effective asset management is gradually increasing. Nomura suggests that in Japan, where low interest rates persist, and lifetime employment and retirement benefits are uncertain, relying solely on savings may not be sufficient for retirement funds. Individual asset formation has become crucial. Additionally, a study reveals that over a 20-year period, Japan’s financial assets have grown 1.54 times, while the United States’ have grown 3.32 times. Improving the financial literacy of the nation is urgently required for the sake of the Japanese economy.

Of course, it would be beneficial to start with introductory investment books or participate in financial seminars to gain reliable knowledge. However, in the ever-changing financial market, there will be situations where the theories you have learned might not apply. Therefore, it is important to gain practical knowledge through hands-on experience.

According to the Nikkei newspaper, “robo-advisors” that can start investing through websites or smartphone apps are gaining attention recently. This matches well with the risk-averse nature of the Japanese population, as these platforms utilize big data to provide optimal asset management advice.

While financial education is now included in higher education, the generation that did not benefit from it faces significant obstacles in understanding the seemingly complex world of “investment.” With a clear investment objective, it takes courage to strike a balance between theory and practice and start investing even with a small amount.