Are UAE banks sending a mixed message on debt?

More UAE banks are launching financial literacy campaigns to educate customers about healthy money management. But with their sales teams pushing credit cards and loans, are they sending a mixed message?

Inas Abu Salem wants to instil money management skills in her daughter after building up Dh70,000 worth of credit card debt. Silvia Razgova / The National
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Inas Abu Salem regrets many of the purchases she made on her credit cards, but the first was one of the worst.

It was bad enough that the oversized Louis Vuitton handbag cost her Dh7,000, but it wasn’t even her style.

Yet the 35-year-old Canadian-Jordanian did not stop there.

At the end of that first month, she had maxed her credit card at Dh20,000, so she signed up for another card and then another, until she was Dh70,000 in debt.

More banks are now trying to stop people such as Ms Abu Salem from getting into the same situation by teaching their customers how to manage their money better through financial literacy campaigns.

Yet it could be said that by doing so they are sending a mixed message. Many institutions have sales teams who push credit cards and loans but their financial literacy programmes urge people to think twice before taking on debt.

The accusation is inescapable but banks have little choice, says Jon Richards, the chief executive at the financial comparison site

“Banks will always have to balance the need for new business with the need to be responsible lenders, which can sometimes lead to mixed messages,” he says.

“Ultimately, there needs to be joint responsibility from both banks and consumers when it comes to debt management.”

Ms Abu Salem, who lives in Abu Dhabi, accepts responsibility for the debt she accrued and readily admits she was the one who contacted the bank to ask for an increase in her limit.

When she finally faced the problem she started setting aside money she could afford to pay her cards off. It was hard work, but after two-and-a-half years she was debt free – and, incidentally, minus the handbag, which she gave to charity.

She may accept her part in it all, but she agrees banks have a duty to arm people with information.

“It’s like your doctor giving you drugs, but they need to tell you these have side effects. This is what happens. They need to have that conversation with their customers,” says the marketing and communications professional.

Ms Abu Salem could have benefited from Abu Dhabi Islamic Bank’s Smartmoney campaign, first launched in 2011, which stresses, among other things, the importance of balancing your finances.

Petr Klimes, the executive vice president and group marketing director at ADIB, says: “Soon after the bank’s rebranding in 2010, we wanted to do something that would be related to our brand values. One of the things we promised to customers is transparency. And we wanted to go beyond transparency, not hide anything and help people make the right financial choices.”

“We also saw there was a big need for it in the market. It is a great country and people tend to make a lot of money, but they do not always make the right financial choices when it comes to saving, budgeting, debt and so on. We have a good role to play in this area.”

Since then the Smartmoney initiative has targeted everyone from school pupils to the owners of small and medium-sized businesses to educate them about how to manage their money. Its booklet, available in every branch of the bank, is now in its third edition.

ADIB is not alone with most UAE banks having some sort of financial literacy programme in place.

HSBC decided against the traditional financial literacy route, but instead teaches its customers the importance of planning for retirement or paying for education.

Emirates NBD has several financial literacy initiatives, including Pay Yourself First, a financial education campaign that encourages customers to set aside savings as soon as they receive their salary.

And last month, Mashreq launched Foloosy, a digital initiative that means “my money” in Arabic, that aims to reach everyone in the UAE, not just its customers.

The launch followed the roll-out of services from the UAE’s first credit bureau last month; it began issuing consumer credit reports to banks and financial institutions. But Mashreq will not say whether the two are related, only that it reflects its chief executive Abdul Aziz Al Ghurair’s desire to give something back to society.

Both have the same purpose – to protect customers from overextending themselves financially.

However, some think the credit bureau could actually lead to an increase in lending.

“For a long time banks have based their decision to lend on whether someone worked for a listed company. Now they can look at current debts, salary, time in a job and other factors that actually contribute towards to a consumer’s ability to repay debts,” says Mr Richards.

“We have seen a sharp increase in the number of people applying for financial products this year, with an estimated Dh350 million worth of personal loan applications sent to UAE banks in September alone.”

Foloosy, like Smartmoney, aims to prevent people from taking on too much debt.

But why do banks run financial literacy campaigns at all?

“No bank wants their customers to delay or to default. No bank wants to risk its capital. These are the main fundamentals of banking,” says Aref Al Ramli, the vice president and head of electronic banking and innovation at Mashreq.

“When you create that awareness among customers, among prospects, among future customers, once they are aware, once they know the guidelines of financial literacy, they won’t over-leverage. They wouldn’t create a scenario where they are not able to pay back and so on.”

The message, however, is different depending on the audience. Schoolchildren receiving talks from ADIB, for example, are encouraged to save.

“When we go to universities the messaging becomes very different; these people are before their first job, before their first loan, so it is important they start on the right foot,” says Mr Klimes.

“We have seen that peer pressure in this market is quite strong. There is a lot of temptation. People drive nice cars and tend to overspend maybe on certain things, so it is important that people manage their finances from early on.”

Reaching out to future and current customers is one thing but measuring the success of a campaign is not as easy.

ADIB, for its part, is using research to determine whether UAE residents are becoming smarter at managing their money.

Last year it surveyed 1,200 people across the UAE to pinpoint the biggest issues. The results were not encouraging.

“Only 60 per cent of people are saving regularly. But only 36 per cent of people over the age of 35 are saving for their retirement and, that is across all the segments. That is a little worrying,” says Mr Klimes.

“We know that 12 per cent of people keep no track of their expenses. Only 60 per cent keep a really good track. And 10 per cent of people actually admit they spend more than they make, so they are getting more and more into [debt],” he adds.

Inas Abu Salem no longer spends more than she makes and only has one credit card, which she uses responsibly. She also plans some financial education of her own.

“I am going to tell my eight-year-old daughter I have been there. I have done that. I actually went through this,” she says.

“People don’t like to talk about these things and they don’t like to tell you they are not doing great, especially here in the UAE. Everybody is great. No, people do have money problems. But it is all hidden.”

Her advice to others in debt?

Arm yourself with information and make the most of the banks’ financial literacy campaigns, which can advise you on the best way to help yourself get back on track.

“Don’t be scared to ask,” she adds. “You have to face the facts. You messed up.”

Banks' financial literacy campaigns

Mashreq: Foloosy

The financial knowledge portal can be accessed by anyone. It features five areas – save, borrow, invest, insure and Islamic banking.

ADIB: Smartmoney

The programme covers saving, budgeting, debt management and how to build personal wealth. It has distributed 300,000 of its Smartmoney leaflets, which are available at its branches free of charge. The information is also available online.

Emirates NBD: Various initiatives

The Pay Yourself First programme encourages people to set money aside as soon as they are paid, while the bank has an app that allows customers to save between Dh50 and Dh2,000 by shaking their mobile, among other initiatives.

HSBC: Financial planning

HSBC’s approach does not focus on traditional financial literacy. It commissions research on topics including the future of retirement and the value of education to encourage people to think about their long-term goals and ambitions. It does, however, also educate customers about credit cards as part of its sales process.

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