Why are Japanese twentysomethings starving themselves to buy the S&P 500?
The Japanese youth have lost faith in working, and that might be a good thing.
It takes a profound lack of self-awareness for a politician to govern over three decades of wage stagnation and then act shocked when young people stop spending money.
During a recent Diet session, Finance Minister Satsuki Katayama clutched her pearls over a newly coined phenomenon sweeping the nation: NISA Poverty (NISA貧乏).
Suddenly my morning routine of watching Japanese TV before work became packed with morning show panels about 20-somethings skipping dates, cutting out skincare, and eating instant ramen in dark apartments.
Their crime?
Hoarding every spare yen to max out their newly expanded tax-free investment accounts (NISA).
But why now?
The political class seems to think this is a moral failing of the youth. I think it is a political abandonment of them to serve their biggest voting block, retirees.
For over thirty years, the Japanese public treated the stock market like a radioactive casino. The catastrophic burst of the economic bubble in the early 90s traumatized an entire generation. The prevailing wisdom became to keep your life savings in a bank account yielding 0.001%. In a deflationary environment, hoarding cash was technically a winning strategy. Your money quietly gained purchasing power while prices fell.
That world is gone. Inflation is back, eating away at those cash deposits. But more importantly, the bedrock of Japanese middle-class security has crumbled.
The old contract for the average Japanese person was simple: You graduate, join a company, and pledge your absolute loyalty. In exchange, you get lifetime employment, a steady trajectory of seniority-based raises, and a rock-solid pension. You didn’t need to understand compound interest or asset allocation because Japan Inc. took care of you.
Today’s youth look at that deal and laugh. They know the pension system is buckling under the weight of a hyper-aging population. They know lifetime employment is a relic mostly reserved for older men at legacy corporations. And most painfully, they know their wages are objectively terrible on the global stage.
There was a time when Japanese salaries were the envy of the world. Today, they aren’t even high for Asian standards. We have been utterly lapped by Singapore, Hong Kong, Taiwan, and South Korea.
This brings us to the math of the new NISA.
In 2024, the government supercharged the private investment program, NISA (Nippon Individual Savings Account), raising the annual tax-free investment limit to 3.6 million yen (about $24,000 USD).
For a typical young salaryman in Tokyo, 3.6 million yen isn’t spare change. It is essentially their entire annual take-home pay!
This fact makes me torn between a deep pessimism about the state of the country and strong optimism about the kids themselves.
The pessimism comes from the necessity of it all. It is undeniably grim that a 24-year-old feels compelled to sacrifice the joy, socialization, and exploration of their twenties to build a fortress of Vanguard ETFs. A healthy economy encourages young people to take risks, start businesses, travel, and consume. When your youth are aggressively front-loading their retirement accounts instead of living their lives, it means they have zero faith that their labor will ever pay off. They have realized that in the 21st century, capital returns crush wage growth.
But the optimism comes from watching their agency. The older generation might still view buying equities as gambling, but the kids have watched the stock markets only go up!
What’s interesting is that these young investors overwhelmingly prefer American index funds over their domestic market. The Nikkei has performed well recently, but I think the ultra-pessimistic reality that Japan’s population is slowly collapsing has made them weary about their companies’ future. The American market offers global tech monopolies, population growth, and a relentless focus on shareholder returns.
Furthermore, buying dollar-denominated assets is a deliberate hedge against the chronically weak yen. These young workers already have their human capital tied up in the Japanese economy and paid in yen. Tying their entire financial capital to the exact same stagnant ecosystem would be terrible risk management.
This investment craze is definitely not just a fad. In recent surveys on what high school boys want to be when they grow up, “Investor” popped up in the top 10 for the first time in Japanese history.
Critics and older commentators love to scold these kids, arguing they should “invest in themselves” by traveling or networking. That advice rings incredibly hollow coming from the generation that pulled the ladder up behind them. Choosing financial independence over another overpriced dinner in Roppongi is a perfectly logical response to a broken economic system.
The government shouldn’t be shocked that people are using the NISA system exactly as it was designed. Instead of lecturing the youth on their consumption habits, politicians need to take a hard look in the mirror and figure out why Japanese salaries have fallen so far behind.
Until wages rise and faith in the future is restored, the kids are going to keep buying the dip.
I don’t blame them for a second.
This was a super interesting piece as I grow concerned about the global youth.