Financial literacy may not directly drive investment participation or retirement planning in Japan

Introduction Japan's rapidly aging society and pension-related deficits highlight the importance of household financial asset formation. Despite policies such as the Nippon Individual Savings Account, Japanese households still allocate over half their portfolios to deposits. While financial literacy has been linked to retirement planning and investment participation, existing research is largely correlational. Method This study uses individual-level data from the 2022 Financial Literacy Survey. We apply the Fast Causal Inference algorithm, which accommodates latent confounders, to examine causal relationships between financial literacy and financial activities, specifically investment participation and retirement planning. Results Our findings indicate that increasing financial literacy may not directly boost engagement in financial investments or retirement planning in Japan, which underscores the necessity for alternative strategies to motivate financial activities among Japanese households. Discussion This research offers valuable insights for policymakers focused on improving financial wellbeing by advancing the use of causal discovery algorithms in understanding financial behaviors.