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Japan needs to address its child poverty problem

Investing in children brings benefits to them and to declining population

| Japan

With a rapidly aging and declining population, human capital is one of Japan's most precious resources. Yet despite Japan's need to draw on every individual in the workforce, there is a section of the population whose potential is being overlooked: children in poverty.

Investing in their education could help these young people secure work, boost domestic consumption and add to the nation's dwindling taxpayer base.

But left unaddressed, their ranks will grow, robbing Japanese companies of a much needed source of young, skilled labor -- ultimately, weighing down on an already overloaded social security system.

On October 17 -- the UN-designated International Day for the Eradication of Poverty -- there is an understandable tendency to focus on developing countries, so it may come as a surprise that child poverty is an issue in Japan, the world's third-biggest economy and one of its largest donor countries.

I myself was unaware of the severity of the problem until I visited a children's home about 15 years ago. I was shocked to learn that once they reach the age of 18, the children in the facility have no option but to leave the home and support themselves. The hurdles to pursuing higher education are considerable, the probability of sliding into poverty high.

But the issue is not limited to children in care facilities. Japan's child poverty rate was 14% in 2015. Among G-7 nations, only the U.S. and Italy recorded higher levels.

This means that today, one in seven children in Japan lives in relative poverty -- a situation in which a household's income is at or below half the median of the total population. In single-parent households, the figure is one in two children.

Since poverty is passed on from generation to generation, its effects multiply into the future. Research has shown that academic underperformance is more likely among underprivileged children. These are children who may regularly attend school on an empty stomach, who may lack the funds to pay for extracurricular activities or who may be forced to work in order to support their family.

With fewer academic credentials, their employment prospects and earnings potential are limited compared to peers from more affluent backgrounds. Ill health, criminality and dependence on state support are more prevalent. As a result, the chances that their own children will also live in poverty are higher. Many will forgo starting a family altogether.

Recognizing the significant, long-term societal costs, the Japanese government has stepped up efforts to combat this issue. In 2013, the Diet enacted legislation aimed at breaking the chain of poverty by equalizing educational opportunities for children regardless of their families' financial situation.

An amendment in June this year calls on municipal governments, in addition to prefectural authorities, to draft action plans to address the problems faced by children from low-income backgrounds.

The scale and complexity of the problem, coupled with the overstretched state of Japan's public finances, point to the potential for the private sector to play a significant role. However, in the past, this very complexity had been a barrier to corporate engagement. Few companies possess the resources or expertise to launch independent initiatives.

Fortunately, things have begun to change. Since 2015, the government-backed National Movement to Support Children's Futures has worked to bring together concerned companies with local nonprofit organizations, or NPOs.

As a result of this and other public-private initiatives, a growing number of companies are partnering with NPOs that work to address both the consequences of child poverty and stamp out its causes.

One such organization is Learning For All, or LFA. Since 2010, LFA has been working with local authorities throughout Japan to provide free-of-charge individual tuition, both within and outside classroom settings, and to offer ibasho or "safe spaces" to over 6,000 children from poor homes or who are otherwise disadvantaged.

A high school student goes to free-of-charge individual tuition in Tokyo. (Photo by Shinya Sawai)

Now, with funding from Goldman Sachs Gives, LFA has begun work on a scalable model that combines academic tutoring with pastoral care to provide an ongoing system of support for underprivileged children in one of Tokyo's poorest wards.

By 2021, it aims to have finalized the model and launch a nationwide expansion. The progress to date is encouraging.

Eradicating child poverty could have huge potential benefits for Japanese society, with the same multiplier effect amplifying the positive impact across future generations.

A 2010 study by the National Institute of Population and Social Security Research found that providing vocational training to youngsters which led to full-time employment could result in a long-term net benefit to society of between 70 million to 100 million yen ($650,000-$930,000) per capita in the form of tax and social insurance receipts and welfare savings.

This compares to a societal cost of 50 million to 60 million yen if no training were provided and the youngsters ended up dependent on state welfare.

I have been working in finance for nearly 40 years. But it does not take an investment banker to understand the economics of investing in underprivileged children: the benefits are clear. If U.N. estimates prove correct and Japan's workforce population shrinks 40% by 2055, the risks of not doing so are even clearer.

Masanori Mochida is President and Representative Director of Goldman Sachs Japan. He joined the business in 1985. Goldman Sachs Gives, a donor-advised fund, has made more than $1.5 billion in grants and partnered with 6,000 nonprofits in 90 countries around the world.

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