While I am on business travel, Expat, a regular reader of TMW, has agreed to guest-post on personal finance issues in Japan. As his pen name implies, Expat is a North American now making Japan home. As the post indicates, personal finance issues are the same the world around; it is only the names and institutions involved that are different. Thanks again for the guest post Expat!

Mari Sato has nodded off on the train again. It’s been happening a lot lately, the result of sleepless nights worrying about a money crisis. Like most Japanese wives, Mrs. Sato is the family’s money manager, therefore it’s up to her to resolve this financial problem. So she lies awake at nights trying to figure out how.

To put it bluntly, Mrs. Sato needs cash — a lot of it, and soon. Her daughter, Sumiko, will likely be admitted into a prestigious university. That would ensure a good career with an excellent salary. But the Satos will have to pay an annual tuition fee of $8,500.

Then there’s Mrs. Sato’s son, Hideshi. He isn’t as good a student as his sister, but because he’s the son, the Satos desperately want him to pass the admission exam of a top university. That means Hideshi must attend a supplementary“cram” school after regular school to help him pass the challenging university entrance examinations. The fee will come to $600 per month, or $200 per subject. By the end of a year, Mrs Sato will have paid the cram school more than $7,200.

To complicate matters, there will be one year in which both children will be in university at the same time, so the Satos will be paying out more than $16,000 in that year alone. Altogether, the cost of the children’s university tuition, not including the cram school fees, will be $68,000. And the $68,000 dollar question is: Where is Mrs. Sato going to get all that money ?

Taking inventory

Mari Sato’s husband has a secure job as a middle manager with a large firm that pays $95,000 a year. He’s earning $20,000 more than the average wage earner for a family of four. Nevertheless in Tokyo, one of the world’s most expensive cities, Mr. Sato’s wages don’t go far.

Mrs. Sato’s salary is a help. She works 20 hours a week in an office, and receives $9,000 a year for typing and making tea for visitors. If she earns much more, the family will lose some considerable tax breaks and pay higher health premiums.

Accommodations costs are high and have put the family heavily into debt. The Sato’s bought their apartment for about $800,000. It has three rooms, a kitchen, toilet room, and bathroom. Total space is 650 square feet. There is no central heating. Insulation is poor. The mortgage is 3.8%, locked in for ten years, and the Satos pay it off in
monthly installments of $1,750. That’s about what they would pay in rent. But as a renter, Mrs. Sato would have to pay the rental agent a fee worth one-month’s rent, and the same amount to the landlord as a “thank you” gift every two years when the lease is renewed. Mrs. Sato would also have to pay one month’s rent upfront, and two month’s rent for the damage deposit. That’s $8,750 in payments before the family moves in. Finally, the Satos would need a sponsor — someone to pay the rent if the Satos skipped out.

Health care

As Mari Sato ponders the looming financial crunch, she thinks the family’s health care payments are steep, but better than paying all the medical bills herself. Based on the Sato’s income, annual fees for the government-run healthcare system are $7,200, but Mr. Sato’s employer pays half. The healthcare plan pays 70% of all bills from doctors, pharmacists and dentists, while the family pays the rest. Mrs. Sato shudders when she thinks of the news stories about disastrous malpractice and incompetence in Japan, including ambulance patients dying when emergency wards refuse admittance because they’re full. However, Mrs. Sato is satisfied with the family doctor, and relieved that when her husband had those headaches last year, he was CAT-scanned and treated by a specialist 24 hours after his initial visit to the GP.

Bargain shopping

In the morning, Mrs. Sato cycles to the supermarket. There are several in each neighbourhood, catering to different budgets. She prefers the Peacock chain which has good quality food for moderate prices. For example, a 140-gram Australian steak costs $4.00. Japanese steak, which is much more marbled, costs 30% more. 10 large eggs sell for
$2.30; and a liter of Tropicana orange juice costs $3.00

There are also good savings at a nearby Isetan store, and when Mrs. Sato gets the chance, she cycles the extra mile to be there at 7pm when the price of prepared food is cut. Items like cooked chicken thighs, fried squid, and sushi rolls are marked down by 30%, and even 60% near closing time. Like her friends, Mrs. Sato keeps costs low by buying
only what she needs, when she needs it, although it means she is in the supermarket almost every day.

Investments – taking stock

Today she decides to stop for a coffee to boost her flagging energy. She slips into one of the two Starbucks in her populous neighbourhood, and pays $3.20 for a small cafe latte. As she sips it, Mrs. Sato’s mind is on her financial problem. Even though she, like so many Japanese, has been fastidiously salting away money for years, banks pay only microscopic interest rates to fight deflation. Right now, in fact, her institution is paying .0025%. Mrs. Sato, a conservative woman, is wary of private banks after several failed in the 1990’s. As a result, she had felt the family savings were more secure in an
account at the banking arm of the government-run Post Office. After all, Japan Post is probably the world’s most reliable. As well, many Japanese felt the government had the resources to protect their savings. But wouldn’t you know it ? Recently, the government privatized the Post Office, so Mrs. Sato’s life savings are in private hands again.

The closest thing Japan has to an RESP is GPS — grandparents’ savings. But in Mrs. Sato’s case, there’s a hitch. Both Mari Sato’s parents have passed away. As for her husband’s parents, Mrs Sato figures that if they are living on the national average income for retired people, they’re only receiving 29,000 dollars. Obviously they depend on their savings. At least her father-in-law is receiving the state pension, thinks Mrs Sato. With the government losing 50 million pension files, some retirees cannot legally link their name to contributions from a lifetime of work.

Nikkei nosedive

Why hadn’t Mrs Sato invested in the stock market all these years ? Likemost Japanese, she sees investing as a big gamble, one she’s sure to lose. She remembers all to well Japan’s Nikkei average soaring to almost 40,000 during the Bubble Years, then tumbling to 8,000 a few years later. To make things worse, the housing bubble burst at the
same time.

She also understands the mentality of Japanese corporations which have little concern for the interests of ordinary shareholders. Corporations form clans and support each other by cross-share holding.

The government isn’t too encouraging either. A cabinet minister has just said that Japanese companies should have the right to choose their shareholders. Although he was reacting to foreign investors buying up cheap shares and increasing foreign ownership, Mrs. Sato thinks it reinforces poor attitudes toward all shareholders.

The Sandman

After weeks of deliberation, Mrs. Sato makes a decision. When she reluctantly approaches her parents-in-law about their grandchildren’s’ future they agree to help without hesitation. Not only is it a duty, they really do want the best for their grandchildren. The elder Satos will draw upon their savings. The children will get the education they need, and Mari Sato will finally get a good night’s sleep.