How Covid-19 has sparked a savings boom in the UAE

A shift in personal financial responsibilities has led to residents cutting down on discretionary purchases and creating emergency funds instead

Karishma Valecha typically went on four overseas holidays every year. Since the outbreak of the pandemic, she has not travelled, resulting in forced savings. Chris Whiteoak / The National

Since the start of the Covid-19 outbreak earlier this year, Karishma Valecha and her husband have been more thrifty with their day-to-day expenses. They have been using enhanced budgeting methods to cut down on their weekly grocery purchases, as well as cutting back on discretionary spending such as dining out and buying non-essential items, which has resulted in a boost to their savings.

“My husband and I used to go out five times a week to dine out before the pandemic. We also used to go for outings with our family. All that has stopped after Covid-19. We have been home bound since February,” says Ms Valecha, a Dubai-based housewife from India. The couple now prefer to cook at home, although this results in higher grocery bills.

Before the pandemic struck, the 38-year-old’s biggest expense was travel. Ms Valecha typically went on four overseas holidays every year. But she has not travelled since the outbreak of the pandemic. The last destination she visited was Bali in October 2019.

"The pandemic has changed our spending habits. I have downloaded several apps on my phone that help me do a cost comparison of grocery products before ordering them online. My husband and I have also reduced our visits to the mall, so that has helped cut down our expenditure," she tells The National.

However, even before the pandemic, Ms Valecha did not have any debt. Her family had taught her to set aside 60 per cent of her income towards expenses and the remaining 40 per cent for savings.

“We have always set aside an emergency fund for a rainy day even before the onset of the pandemic,” says the former banker, adding they invest in stocks and fixed deposits.

During the pandemic, Ms Valecha and her husband, a financial director with an energy drinks company, continued those investments, particularly in gold futures as bullion prices have been rising steadily.

“We have also been investing in stocks in companies like Uber and Boeing because we expect them to perform well and anticipate price appreciation. We have also invested a small amount in mutual funds in India,” she says.

The couple has also managed to offset some expenses during the pandemic because of a rent reduction offered by their landlord.

This resonates with a recent study conducted by YouGov on behalf of consultancy Kearney Middle East, which found that four out of 10 UAE residents increased their personal savings during the Covid-19 stay-at-home measures, as they cut back spending on big-ticket items and even reduced the amount of money remitted back home.

“Staying at home and the various movement restrictions have caused UAE residents to rethink their lifestyle and personal financial decisions," says Devesh Mamtani, chief market strategist with Century Financial, a financial consultancy in the UAE. "Job losses, reduced salaries and leave without pay on account of Covid-19 have resulted in a reduction in personal disposable income.

“This has forced residents to make more rational decisions as far as spending and investments are concerned.”

Philip King, global head of retail banking at Abu Dhabi Islamic Bank, says there has been a significant increase in customers opening savings accounts during the pandemic. Courtesy: Abu Dhabi Islamic Bank

Banks in the UAE are also reporting an increase in customers opening new savings accounts and a rise in account balances during the pandemic.

“The average balance per customer across our standard, gold and diamond accounts has increased during the pandemic," says Philip King, global head of retail banking at Abu Dhabi Islamic Bank. "This is a trend that has been evident across our general and private banking offerings as customers have cut down their monthly expenses and taken the opportunity to save.

“What was significant was an increase in customers opening savings accounts through our digital channels. With mobility limited, nearly a third of new customers opened their savings account through our website or mobile app,” adds Mr King.

Zachary Holz, a Dubai schoolteacher, managed to save between 80 per cent to 85 per cent of his monthly income during the pandemic. Courtesy: Zachary Holz

Zachary Holz, a 37-year-old American teacher in Dubai and author of the personal finance blog The Happiest Teacher, says he is now saving between 80 and 85 per cent of his monthly salary compared with 60 to 65 per cent before the pandemic.

“One of the big expenses I cut was eating out. I used to go to a little grocery store to get lunch every day when I was working at school. I could not do that anymore, so I am preparing more food at home now. Also, I had a maid coming to my house earlier but that has stopped,” says Mr Holz, who has been in the UAE for five years.

He also spent less on petrol and car maintenance because he wasn’t going anywhere, while he didn't shop for new clothes or spend on leisure activities.

In terms of debt, he had a car loan but he has since sold the vehicle and is now renting one instead.

In an uncertain world, it is good to have a substantial amount of dry powder to deploy however you need to

Before the onset of Covid-19, Mr Holz had an emergency fund that would cover his expenses for three to six months but that fund has ballooned to cover two years’ worth of expenses.

The teacher says the extra cash helps him sleep better at night because he is awaiting his new work visa from China. “Once I get more stable in terms of my new job, I will invest the extra savings in a preferred asset class,” he adds.

Mr Holz has been primarily investing in stocks, bonds and property, specifically in real estate investment trusts in his home country of the US.

During the pandemic, he also started tracking the number of days in which he did not spend any money at all and says he had nine "no-spend days" in April.

"I am not trying to recreate such days now because my emergency fund has reached a point where I am satisfied. But at that point, I felt like I was in charge of my personal finances. In an uncertain world, it is good to have a substantial amount of dry powder to deploy however you need to," Mr Holz tells The National.

Mr King says that on average, deposits at ADIB were up 10 per cent from the end of March to July, while there was a marginal increase in customers proactively paying down their cards and home finance products in May and June. However, by July, these payments had returned to typical levels as stay-at-home restrictions eased.

Financial consultants say that residents have come to terms with the fact that the current economic factors may last for a longer period than initially thought. This has forced them to treat the increase to their savings during the pandemic as a critical cash buffer that will protect them against any future job-related uncertainty.

According to David Raynor, a consultant with financial advisory deVere Acuma, people in the UAE reduced their monthly outgoings by up to 20 per cent during the period when stay-at-home restrictions were in place.

“I always recommend that clients need to apply personal taxation. This would be putting a saving of around 10 to 20 per cent of their monthly income into a savings account while working in the UAE. This should be done at the start of the month rather than with what is left after expenses and entertainment,” says Mr Raynor.

He recommends people have liquid savings of somewhere between three and six months’ salary as an emergency fund that can be used should the situation arise.

Devesh Mamtani, chief market strategist at Century Financial, says people in the UAE are avoiding splurging on big-ticket items and even reducing the amount of money remitted back home. Courtesy: Century Financial

“Savings plans continue to dominate the market in such uncertain times. Individual investors are now looking at plans with short-term tenures when compared with previous demand for plans with a duration of less than 10 years,” says Mr Mamtani of Century Financial.

Financial consultants say that people with a high debt burden in the UAE are increasingly looking to reduce their debts and normalise cash outflows as far as interest payments are concerned. They recommend individuals with lower incomes and fewer cash reserves to start building up their emergency funds.

Wealth advisers also suggest that people start saving for retirement only if they have enough funds to sustain themselves in the UAE in case of a worst-case scenario.

“For those unfortunate to lose their jobs and income, this gives a taste of what their financial future could look like in terms of retirement if they don’t take proactive steps to build sustainable savings towards their future," says Mr Raynor.

He says there has been increased interest in personal protection plans, with parents wanting to ensure that if something should happen to them, their children are protected.

“This tectonic shift in personal financial responsibility is positive for residents in the longer term. Over time, when things improve, wise decisions made now will only add to one’s wealth in the long run,” adds Mr Mamtani.