Kakeibo: Making Ends Meet in Japan

I am a big fan of the Nobuko Takahashi Kakeibo[1] Clinic, an advice column published in Fukuoka’s Living Magazine, and have been reading it for many years. In the column Ms. Takahashi answers personal finance questions posed by Japanese housewives and gives advice on how to deal with the challenges facing their families. It offers an unusually candid look into the personal finances of the typical Japanese family.

In one of her more recent posts, a 28-year-old housewife and mother of a five-month-old baby girl wonders if it might be better to buy a house sooner rather than later.

The housewife writes:

“My husband and I married two years ago. Wishing to devote myself to raising our child, I quit my job and became a stay-at-home mother. Compared to when my husband and I were both working, our income is now half what it used to be. Although I’m somewhat uneasy about our finances, I enjoy raising our daughter and, because our home is a happy one, it hasn’t been hard for us to cut down on expenditures.

“First off, we reduced our pocket money and took a second look at what we had been spending on our cellphones. We seldom, if ever, eat out, and are able to economize by cooking for ourselves at home. Large expenditures, such as insurance are paid in annual installments and we’re trying reduce costs wherever possible. We also put aside a little every month. My husband’s varies by as much as 100,000 yen a month depending on how much overtime pay he earns. Our expenses, on the other hand, are fairly stable at the amounts I have indicated below.

“Recently, my husband’s parents have suggested that we build a house near theirs and we’re now thinking of buying one in the near future. I’ve heard, among other things that the tax deduction for homeowners will be reduced and the tax on property increased, so I’m wondering if we should make haste in buying a home or wait. Also, how much cash should we put down? We’re taking another look at our insurance premiums to see if we can save money there. We look forward to hearing from you.”

Mr. & Mrs. T of Kitakyūshū City

Husband (31), Wife (28), Daughter (5 months)

Income

Husband’s monthly income                                  240,000 yen

Children’s allowance from government                13,000 yen

                                                                        253,000 yen per month

Rent                                                                  58,000 yen

Food                                                                  26,000 yen

Utilities                                                              18,000 yen

Cellphones (2)                                                    15,500 yen

Misc.                                                                    2,000 yen

Medical Costs                                                       1,000 yen

Gasoline                                                            20,000 yen

Entertainment                                                     5,000 yen

Misc.                                                                  15,000 yen

Child Care Related Costs                                       7,000 yen

Husband’s Allowance                                           30,000 yen

Wife’s Allowance                                                  10,000 yen

Wife’s Life Insurance                                             2,000 yen

Education Insurance                                             5,000 yen

Car Insurance                                                       5,000 yen

Total                                                                  219,500 yen

Surplus                                                               33,500 yen

Annual Bonus                                                    960,000 yen

Annual Costs

Car Insurance (2 cars)                                         85,000 yen

Car Inspection                                                   100,000 yen

Husband’s Life Insurance                                    38,400 yen

Educational Insurance                                       116,000 yen

Savings

Husband’s Savings (1)                                    2,200,000 yen

Husband’s Savings (2)                                    5,300,000 yen

Wife’s Savings                                                2,200,000 yen

Child’s Saving                                                   200,000 yen

Before I go on to Takahashi's advice, I'd like to point out that the husband earns a modest annual salary of 3.8 million yen, or about $38,000 a year. The two of them, however, have ¥9.9 million (or $99,000) in savings. According to CNN/Money's net worth calculator, the average median net worth for an American in Mr. & Mrs. T's age group is only $8,525, and $34,375 for his income level. 

Japan is commonly believed to be an expensive place to live as evidenced by melons selling for a hundred dollars each. But in actuality, it can be an easy place to sock your money away. Medical costs, thanks to an excellent national healthcare system are unbelievably low, rent is reasonable if you’re willing to compromise on location and size, public transportation makes owning a car with all its related costs unnecessary, and taxes are not very high.

Takahashi replies:

“Even though your income has been reduced by half, you still manage to run a monthly surplus and have already saved close to 10 million yen. What’s more, you have the goal of building your own home and are putting effort into saving money to that end. Keep up the good work.

“You asked when the best time to buy a house was. Earlier is not always better. It’s important to keep in mind that there are three periods in a person’s life when they can purchase a home.

“The first is when low interest rates, tax deductions, a fall in house prices, and so on make it advantageous for you to buy a house.

“The second is related to your life cycle. You should determine whether it is a good time to move by looking at the start of your child’s entry into a new school or the needs of your parents and so on.

“And the third, is by looking at your personal finances. Can you safely buy a home—have you got enough money to put up front and is your situation stable enough for you to afford to make payments?

“It is ideal when all three of these come together at the same time, but you should at least prioritize the second and third points. In your case, you need to check whether there is a chance that your husband will be transferred in the future, and you should think about your relationship with his parents. You should also look into how much more you are able to save from now on and how much you’ll be able to spend on a house. Until you do that, you won’t be able to determine how much you of a down payment you should make.

“You also need to be careful about rises in the interest rate, reductions in the deduction for homeowners, supply and demand, and so on. A fall in the supply of building materials and carpenters, for example, can cause the price of building a home to rise considerably, which makes it easy for construction companies to cut corners.

“You might want to also take a second look at purchasing some additional life insurance for your husband. If necessary, you can always work full time, but if you add a life insurance policy to your home loan, you can receive up to 10 million yen in the event that your husband passes away. Otherwise, you might want to take out another policy on your husband.”

Whaddya think?

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[1] A kakeibo (家計簿) is a family account book. Any Japanese housewife worth her salt (almost wrote “worth her mustard”) will keep a detailed record of her family’s expenditures and keep a the purse strings tight.

Maho Manshon

Thermoses in Japan are known as mahōbin (magic bottles). And magic they are! You can put ice cubes and water in one and, hey presto, 24 hours later the ice still hasn’t melted, even in the middle of summer. And vice versa with boiling hot water. So, why can’t I have a mahō manshon; in other words, an apartment that stays warm in winter and cool in summer?

It was a crisp two degrees when I woke this morning and I could see my breath. Mind you, that was, inside our shinshitsu, or the tatami-floored room where my wife, two young sons and I sleep, huddled together for warmth like polar bears. When the alarm went off, I crawled out from beneath three layers of kaké-buton duvet and blankets, pulled on a pair of Heat Tech long-johns, heavy socks, and a sweatshirt to face the harsh elements of my kitchen where I brewed a cup of coffee to help myself thaw out.

About ten years ago, we bought a fan heater that could be connected to the gas main in the kitchen. Let me tell you, I felt like Prometheus! With a flick of a switch, the heater kicked to life and the richest, deepest heat, like hot bath water flowed over me. Now every morning, when my boys wake, they amble two paces out of the shinshitsu and then lie down like cats before the heater, unwilling to budge for the next thirty minutes.

The thing is, no matter how cozy that heater of ours can get the room, as soon as it’s turned off, the warmth dissipates as if the very soul of our living room is being frittered away. 

While the persistent cold is bad enough, my pet peeve is the moisture that forms on the windows overnight. Every morning, my boys—armed with special squeegees that have a receptacle in the handle—scrape the dew off, collecting two, sometimes four, cups worth. I have suggested to my wife that we drink it to re-capture the life-force that is being robbed from us in the dead of the night.

It doesn’t have to be this way, does it? Why a friend of mine in Iceland told me that even when it’s -10℃ outside, he can leave the window open and it will still be a comfortable 25℃ inside. Even a DIY amateur like myself can see that there are simple solutions to these problems. Better insulating, weather-stripping, and double-glazed windows are just a few things that come to mind, but I seldom see them in the wild. So, what gives? Why do the Japanese who are by no means poor, live as if they were?

Whenever I bring these annoyances up with my Japanese friends, they tell me the same thing: “Oh, Crowe-san, but Japanese homes are built for summer, not for winter.” To which I can’t help but shoot back: “You don’t really believe that, do you? Built for summer? Built to trap in the heat and humidity that prevents you from getting a proper night’s sleep for two months of the year? Really? Really?”

Sigh.

What I suspect, though, is that many manshon here are not built to last much longer than forty years or so. Yes, some of the better-built ones today could theoretically continue to be lived in 100 years from now, but all you have to do is look at the condos that were built in the 80s to imagine how today’s ones will look in only thirty years’ time—shabby and cramped, the sun blocked by more modern and taller neighbors. And because they aren’t built to last, corners are cut—mind you, not on safety, because Japanese buildings are some of the safest in the world—but rather on comfort. Why spend extra money on something that’s eventually going to be demolished, seems to be the thinking.

The same is true, if not more so, for houses. Several years ago, there was a fascinating paper published by the Nomura Research Institute (NRI) that has since been quoted by nearly every article written on the Japanese housing market since. (For some reason, the original article no longer exists; it has been bulldozed and scrapped like many older homes in Japan.) The article, summarized in a Freakonomics podcast on Japanese houses, claimed that despite Japan’s shrinking population, the number of new homes built every year was on par with that of the United States, which has three times the population. Per capita, Japan also has triple the number of architects as America and twice as many construction workers. So, what gives?

One reason for this is that houses are for all intents and purposes all-but worthless after only fifteen years according to the NRI paper, and thirty years by more conservative estimates. Again, why use the best materials when you’re just going to smash a wrecking ball into the place within a generation? And so, what you have today are charmless plastic boxes with thin walls and single-paned windows that are for the most part disposable.

I once stayed in an apartment in the hip Trastevere neighborhood of Rome. Inside, it was as comfortable as you could hope, with high ceilings, a rather spacious designer kitchen, and a modern, though somewhat small, bathroom. The building itself was over seven hundred years old and beautiful—700 years!—as were most of the buildings in Trastevere. And no one, but only a heartless real-estate developer perhaps, would ever consider tearing one of those treasures down. And isn’t that what architecture should be, a treasure, something that adds value to the land over the long run rather than being little more than a temporary tenant that will eventually wear out its welcome?

Ah, but I digress and now my coffee has gotten cold and so have I.

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Sources:

              http://freakonomics.com/podcast/why-are-japanese-homes-disposable-a-new-freakonomics-radio-podcast-3/