Weekend Listen: Japan’s $2 Trillion ‘Dementia Money’ Cliff

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1:12Chizuko is a 76-year-old retiree who lives in the Japanese rural district of Fukui, just north of Kyoto. Her daughter Mai is 55. Chizuko and Mai are pseudonyms that they've asked us to use for privacy because they're talking about their family's finances. They were interviewed by Bloomberg in October. So Chizuko, she lives in, you know, one of the rural parts of the prefecture, kind of surrounded by a lot of forestry and rice fields. That's Alice French, who covers the Japanese stock market out of Tokyo. She's been an active stock investor since she was kind of in her 30s or 40s. So her finances are, you know, important to her.

1:54She's built up quite a nice nest egg. or that she's a pensioner now and she relies quite heavily on those savings that she's built up. Like many Japanese families, the pair rarely talk about money. But recently, Chizuko's daughter heard something that pushed her to finally broach the topic of financial planning with her mom. Mai, the daughter, was telling us that she's kind of been hearing stories recently, one of which came from another relative. One of her relatives, basically, their account was found frozen after they passed away. Mai said the children of her elderly relative had no idea the account had been frozen.

2:38When it came time for them to handle the estate, they were shocked to discover that they couldn't access their parents' money. And this kind of really triggered an anxiety for Mai. You know, she's thinking, you know, her parents are also kind of getting to that age. They're relying on a pension. And obviously, you know, one never really wants to have to think about your parents kind of becoming unable to handle things themselves. But it is a reality and it's something that you have to think about. It's a reality playing out all over the world as populations age and families plan for their futures.

3:12In Japan, home to the world's oldest population, there's a greater sense of urgency to that planning. That's because almost a third of the country, around 36 million people, are over the age of 65. More and more seniors are now reaching that age where they might be experiencing dementia or, you know, these kind of financial risks that come with aging, whether that be kind of rash purchases, sudden selling. In Japan, these financial risks aren't confined to small pocketbook issues. Seniors with symptoms of cognitive decline now control trillions of dollars in liquid assets. That's cash and investments in stocks, bonds and other securities.

3:56Assets that are at risk of being mismanaged are not being put to use in the economy. It's almost half of Japan's GDP that falls into this category. And, you know, from health economists to think tanks to lawyers, all of the people that we spoke to are basically saying, as that pile of assets grows. It's going to slow down consumption. It's going to slow down markets. It's going to start impacting economic growth. It's kind of got to a level now where I think it's becoming difficult to ignore. And that's really started to raise alarm bells in Japan, but also across other economies.

4:34This is The Big Tech Asia from Bloomberg News. I'm Wan Ha. Every week, we take you inside some of the world's biggest and most powerful economies and the markets, tycoons, and businesses that drive this ever-shifting region. Today on the show, Japan's dementia dilemma. A growing share of the country's financial assets are controlled by the elderly, many at risk of cognitive decline. Why, that's a problem for everyone, not just Japan, and what the Japanese are doing about it.

5:16In Japan, older people have a lot of financial power. Those over 65 control more than half of the$14 trillion in cash and securities held by Japanese households. But Bloomberg's Alice French says a big chunk of those liquid assets is held by people with dementia and cognitive issues. We understand from data from Sumitomo Mitsui Trust Bank that it's at around$2 trillion, which is around 315 trillion yen. Now, that includes people who have an actual dementia diagnosis, but it also encompasses people with something called mild cognitive impairments. Now, this is usually something that comes in kind of in the years before you might get an official dementia diagnosis.

6:01You know, sort of from the age of 65 onwards, many older people do start to experience kind of lapses in memory, you know, struggling with judgment and things like that and just kind of overall cognitive decline. People may develop cognitive decline in dementia due to a variety of factors, including genetics and lifestyle choices. But age is the strongest known risk factor, with research showing that the risk of developing dementia rises after 65. In Japan, the population of elderly with cognitive decline is growing fast. And Alice says there are big financial risks associated with what some are calling dementia money.

6:43I've heard stories of seniors with dementia or kind of cognitive issues, for example, suddenly donating huge amounts to charities that they love or, you know, buying into schemes. that it's not necessarily scamming, but it's sort of just perhaps what one would describe as ill-advised spending. It can also creep in in ways like missed bill payments that obviously affects credit scores. And then kind of on a bigger scale, you know, obviously fraud is a huge problem. We know that in Japan, over 60 % of financial scams in 2024 were targeted at over 65s, which is pretty staggering. The older population is seen as more vulnerable to this.

7:23And of course, that's only exacerbated if you have dementia or some, you know, cognitive issues. Financial firms can freeze accounts or place limits and restrictions on them if they identify what they consider to be erratic spending patterns. Research from Tokyo's Keo University shows that about 11 % of adult children who take over their elderly parents' finances have found those accounts frozen. In terms of how they're actually implemented these freezes, it really does vary from sort of company to company and from bank to bank. One of the firms that we spoke to said that their staff makes annual visits to clients who are aged over 75 and sort of judges their cognitive abilities.

8:06Now, of course, you know, in most of the cases, these sort of securities firms, employees, they don't have a medical background and they're sort of having to just use their best judgment. Obviously, one would assume with the client's best interests, you know, at heart, but it is a very difficult judgment cool. Money in a frozen account can't be stolen by a scammer or squandered by an older person who might not understand how they're spending. But it can't be accessed by the account holder's children either. And that's a problem. They might need that money to pay for their parents' care. And if they can't access it, they might end up paying for that care themselves.

8:42The accounts can be unfrozen, but that can be a long bureaucratic process. And it doesn't always happen. In some cases, money in those frozen accounts is not claimed at all and ends up in the hands of the government. So that means that a lot of this money ends up dormant, whether it's in cash piles under seniors' mattresses at home or whether it's sitting in bank accounts. Alice says this growing pile of dormant dementia money has implications for Japan's economic growth. Japan is struggling to boost its economy after decades of deflation. The country needs its people to spend that money, not let it sit idle in frozen or dormant bank accounts.

9:25One of the think tanks that I spoke to for this story, for example, had this stat that said that if the kind of dormant money that the over 60s are sitting on, if only 0.2 percent of that money was actually actively spent, it could boost GDP by one percent. There's an irony here. Some banks are worried that their older customers might be taking too many risks with their money. Some corporations, on the other hand, are concerned that their older investors might not be taking on enough risk. 42 % of retail investors in Japan are over 60. Alice says if those people become too risk-averse as they age, that could affect a company's liquidity and even its corporate strategy.

10:07If a big chunk of your shareholders, for example, have dementia or are either unable or unwilling to kind of actively use their shareholding rights, that can get in the way of acquisition deals, that can get in the way of things like corporate governance decisions. She says it's becoming a big issue for family-owned companies. More than 90 percent of businesses in Japan are family-owned. And over half of companies are run by people aged 60 and older. This all adds up to a looming issue for corporate Japan. For example, if the founder is still the majority shareholder, but maybe has dementia or is just aging and is unable to use those shareholder rights, M &A deals have been collapsing.

10:50You know, you can't even do something as simple, for example, as appointing a new board member if you can't get majority shareholder approval. And of course, this is all happening against a backdrop of Japan trying to push forward with corporate governance, with better capital efficiency. We've got an M &A boom that's continuing here and is expected to boom even more in 2026. So this kind of is, I think, a real tangible risk. And that will start to have, I think, a rippling effect across the markets and across lots of different asset classes.

11:26What is Japan's government doing to protect its aging investors? And how does it plan to tap into those dormant trillions? That's after the break.

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12:45Japan's population is aging faster than any other in the world. And the number of Japanese people with dementia is growing fast too. That makes the problems that come with having assets controlled by people living with cognitive issues hard to ignore. Bloomberg's Alice French says the Japanese government is taking action. That includes reviewing Japan's guardianship law. Similar to power of attorney in the U.S., the law allows family members to take legal control of a relative's finances if dementia sets in. Only around 5 % of dementia sufferers in Japan right now are using that system and the government would like to boost that.

13:26Now, it seems that one of the main reasons that people are a little bit wary of using the system right now is that once you're in it, once you sign on for this guardianship system, you can't get out. That does kind of put off some people who might, for example, change their mind. So the government is looking at the possibility of bringing in that option that you could withdraw at a later stage once you're in it. And they hope that that kind of new level of flexibility will bring more people into the guardianship system. Alice says the committee reviewing changes to the existing law could propose amendments as soon as this year.

14:00But it could take years for those changes to take effect. Until then, banks and securities firms are coming up with their own solutions to ensure that their elderly clients' assets are protected. And some older people, alert to their circumstances, are working with them.

14:20Chizuko and Mai, who we met at the beginning of this episode, had a frank conversation about Chizuko's financial situation. They decided that Chizuko would make Mai a guardian of a special family support account offered by a local securities firm. Now, if Chizuko is unable to manage her finances, Mai can make decisions on her behalf. I think in many ways, this mother-daughter couple were kind of a best case scenario. And the challenge here is kind of scaling them to be the majority. The sense that I've got for sure is that the finance industry is really kind of at the forefront of sort of pushing this issue forwards and raising the awareness.

14:59So Imamura, who I spoke about, which Chizuko uses, they were very frank with us. You know, they were telling us that they've seen a spike in fraud and scams, particularly amongst their elderly clients. And they really want to kind of crack down on that because it's a risk for them, too. And in recent years, they have started, like I say, bringing in these kind of solutions for their senior clients so that they can manage their assets alongside a younger family member. So these family support accounts are kind of gaining traction. There's another company called Kagawa, which is on Shikoku, one of the sort of more southern islands of Japan, which has brought in a similar system just in the last sort of 18 months or so and has said that they've been surprised by the amount of demand.

15:44The steps are gradual and small at this stage, but there's definitely a sense that momentum is building. And companies are beginning to look for ways around the issues that come with having too many older shareholders. Japanese telecoms provider NTT found in 2023 that almost half of its shareholders were aged over 70. The company solved the problem with a stock split, which had the effect of diversifying the age of its shareholders. So NTT, for example, did a 25 for one stock split in mid 2023. And they've now seen the proportion of over 70s among their shareholders down below 20 percent. So in that sense, it was it was pretty effective.

16:25Right. And we've seen stock splits kind of shooting up over the past few years. There are lots of reasons for it. It's partly because of the sort of corporate governance drive and the drive for better shareholder returns. Of course, if you can attract younger shareholders, they'll hold your stock for longer. But Alice says one of the biggest challenges is the lack of awareness of this looming financial dilemma. It is quite a taboo topic. And it's one of the biggest challenges that we found actually in trying to report on this theme, right, is that a lot of people don't really want to talk about it.

16:57It is a bit of a touchy subject. And I think that's not just in Japan. I think all across the world, part of the problem is almost a kind of unwillingness to want to confront your own weaknesses. We know that, you know, a lot of market players across the world obviously fall into the over 65 category and nobody kind of wants to think that they might not be making, you know, the best financial decisions on the day to day. So I think there is definitely that resistance there to kind of confront the reality People don't necessarily want to think of themselves potentially losing independence and the ability to handle things by themselves and having to rely on their kids.

17:33That's if they have children to rely on. More seniors are living alone in Japan. A government study estimates that by 2050, as many as 20 percent of Japanese households could be occupied by elderly people living alone. and potentially handling their finances without any support. That means the burden would ultimately fall on the government and the financial industry. Japan is working hard to find solutions, and the world is paying close attention. That's because dementia and cognitive decline are beginning to take a toll on economies across the world. In the US, around$6 trillion could be owned by dementia sufferers in the States right now.

18:21Now, that is not a number to sniff at. And obviously, that's something that, again, is only going to grow as the population continues to age. South Korea, another Asian nation that is often in the headlines for its aging population, over$100 billion held by dementia sufferers, a lot of that in illiquid real estate. There's a lot of talk about the rising tide of dementia in Japan's population and a lot of worry about the knock-on effect that this dementia money is having on economic growth. But Alice says she's not seeing much in the way of solutions. I think for me, what surprised me, or I suppose worried me the most, was kind of how haphazard the solutions are at this stage.

19:05So for the financial industry, they are desperately trying to get a handle on a problem that I think has somewhat crept up on them. You know, there is no overarching playbook about how to deal with this. The pace of ageing in Japan is so fast. And I think a lot of people didn't really think about the risks that will then come with that from the financial side.

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