The Tyler Group on How UAE improves financial literacy
Financial literacy is the awareness of how money functions and the capacity to handle one’s finances successfully. While it is not a new idea, it is a completely recent phrase frequently used in the UAE.
Why is this so? The reason, it appears, is that we are a not a financially knowledgeable nation.
This can be clearly gleaned from our amount of debt, which constantly increases. In spite of the fact that the Central Bank introduces more rigorous qualifications for individual lending in 2011, banks are still allowed to grant loans of up to 20 times a person’s monthly wage, with installments not to go above 50 per cent of monthly wage.
The worth of personal debts in the country rose by 3.8 per cent to Dh270.7 billion between January and May this year alone, according to the Central Bank. That sum is over and above the Dh8.8 billion increase in individual loans reported during 2012.
In addition, a survey by The National Family Status Observatory in 2012 revealed that about 60 per cent of Emirati families disbursed about one fourth of their monthly earnings repaying loans from credit cards and individual loans.
Those figures are excessively high, says Keren Bobker, the financial counselor who writes The National’s “On Your Side” column.
“A major fraction of the population has total monthly loan obligations that surpass their income,” she says. “Inescapably, this will end up in defaulting on payments and other dire consequences.”
So why is the UAE exceedingly financially uninformed? “Many factors can explain this predicament,” Ms Bobker says. “These comprise having to handle financial products in a second language; absence of transparency in terms of many financial products and services; lack of help from banks, and excessive hard selling which are improper.”
Having debts has been embedded into the culture, she says. “So many citizens here simply believe that having large uncollateralized loans is natural and end up paying huge amounts of interest without truly understanding the real cost of spending and, more so, whether the loan is at all needed.”
Not possessing as much consumer protection as other developed countries and without a regulatory agency which can assist citizens with their complaints, aggravates the condition, she adds.
It is not surprising therefore that financial literacy is already a principal subject of discussion in the UAE. And with a portion of the nation’s economic-development program aimed at producing a financially knowledgeable society that will prop up a sustainable, diverse economy by 2030, several financial institutions have initiated programmes to resolve the problem.
Banks, institutions such as the Emirates Foundation and the Abu Dhabi Council for Economic Development, as well as private firms include the many which have joined in this vital task.
The Emirates Foundation, an autonomous philanthropic organization formed by the Government of Abu Dhabi to support public-private financed projects to enhance the welfare of citizens all over the nation, is coordinating with financial professionals, banks and the private sector to motivate people to administer their finances more efficiently.
With the help of a financial awareness promotion called Isrif Sah (Spend Right, in English), the foundation hopes to form a cadre of 100 Emiratis who will be educated to become experts in personal finance and help others in turn. Eventually, the foundation will tour the country, catering to students in schools and universities as well as consumers in the malls, to assist in disseminating the message.
Sheikh Sultan bin Tahnoon Al Nahyan, managing director of the Emirates Foundation for Youth Development, states: “Financial literacy has arisen as an increasingly vital issue particularly in the light of the global economic crisis, where efficient handling of debt came out as a very crucial matter. We aim to help the youth in the UAE obtain the proper knowledge to help them avoid excessive debt and handle finances in order to support themselves and their families all through their lifetime.”