For many, credit cards are either a convenience with rewards and part of a budgeting strategy or a tempting gateway to spending beyond your means.
Yet credit cards used wisely from a young age could actually be good for your future financial health.
This was a key message to emerge from Manage Your Money, Build Your Future, a panel session - held earlier this month - discussing fiscal attitudes, money management and opportunities - and the power of credit rating - among millennials and UAE youth.
Focusing on how better personal finance action now can lead to rosier financial futures, the event led with startling figures revealing the poor financial circumstances many UAE adults are in.
Tariq bin Hendi, executive vice president and head - wealth products and advisory for retail banking and wealth management at Emirates NBD Group, said just 38 per cent of UAE adults are considered financially literate, 68 per cent of the population have no formal savings, across the age and economic spectrum, and 94 per cent experience financial stress.
“Some of those stats are quite eye-opening as to where we are as a country," he said. "The bankers rely on the economic success of the country - and that is driven by the people.
“We’re living in a highly commercialised environment and the propensity to spend is greater than the propensity to save."
Mr bin Hendi said that many millennials prefer to rent rather than buy their homes and prefer to lease their car or use Uber.
"The ownership component doesn’t exist outside of your phone, clothing and so on. They’re happy to use more of their income as disposable income than to necessarily allocate it to hard assets that previous generations were comfortable with, because of the different experiences (such as recession) they went through," he added.
So, how can millennials manage their money to ensure they are in sound financial health? According to the panel discussion, they need to monitor their credit rating, keep a check on their Debt Burden Ratio (DBR) and start saving as early in life as possible.
Convened by Emirates NBD for its financial literacy platform #moneywise, the panel concurred the emerging generation has a major chance to embark on a better informed and, therefore, healthier financial journey.
One key to assisting and curating that is the emergence of the UAE’s Al Etihad Credit Bureau, which first launched in the UAE in 2014.
It harvests credit data including loan, mortgage, credit card and phone bill payments, and assembles a credit record on the nation’s financially active.
While chiefly helping lenders assess the credit reliability and risks of individuals seeking finance, personal access to its records can help all residents keep an eye on their rating - almost like a credit health check.
Daniele Lavalle, panelist and AECB’s head of product development and data operations, said this presented a “golden opportunity for young people in the UAE”, unavailable to previous generations.
“They are approaching the financially active part of their life with a credit bureau in place. It’s in their hands, all the potential to create a high credit score,” he said. “You get your first credit card; after three to four months, you will get your first credit score.
“This is the most important credit facility of your life; the way you build solid credit history. It’s part of your business card whenever you approach a bank for a credit facility; these will be reviewed when you ask for a personal loan or mortgage.”
While the fact that sensibly used credit cards can actually promote a positive credit score could be news for some, so too might be taking on too many cards. Even if they are given freely and left unused in a drawer, too many cards could count against your future credit entitlement.
The notion of writing a healthy “financial CV” was echoed by panel moderator Ambareen Musa, founder and chief executive of the financial comparison site Souqalmal.com.
“If you go to the US the first thing they do at 18 or the moment they get out of university, is get a credit card," she said. “It’s the easiest line of credit you’re going to get to start building that history. You haven’t missed payments, you don’t have any loans; it’s a clean slate you’re starting on. Most people don’t know that, though.”
Ms Musa warned, however, that a credit card is “not a key to a lavish lifestyle, it’s a key to build your credit history".
“When a bank looks at you (later) and says ‘should I lend to this person’ they look at your previous behaviour," she added.
Ms Musa also underlined the importance of millennials being aware of the AECB and their credit rating.
“It’s a behavioural CV of how you manage your finances. I know from day one to when I buy my house, I need to pay my bills to show banks I can borrow money and pay back on time," she said.
“It’s a resume and if that looks good not only will you have a lower rate, you’ll likely have options because all banks will want you.”
Panellists said young people should also beware of their debt burden ratio (DBR) and ensure it is limited to 50 per cent of salary as stipulated by the Central Bank of the UAE. In other words, earn Dh10,000 monthly, spend less than Dh5,000, and your perceived risk level to a bank is lower. Dormant credit cards can also impact your DBR.
Mr bin Hendi said many UAE residents feel financial stress because of their "inability to manage wealth.
“Financial literacy is effectively defined as the ability to use knowledge, information and skills to determine the best financial outcome for your future,” he said, adding that the #moneywise platform helps customers improve their financial literacy levels.
"That gives you choice; the ability to choose how you plan for your future," he said. “Part of our mission is to get people to start saving very young. I can’t emphasis enough; you have to start as early as possible…you don’t know what is going to come along in life.”
Emirates NBD's education programme includes school outreach sessions, with staff visiting classrooms and inviting kids to “be a banker” for the day.
Also seeking to “begin the conversation” and show the importance of saving and planning is Emirates Foundation for Youth Development; it offers financial educational programmes, such as Esref Sah, which has reached more than 45,000 people over five years.
Acting senior programmes manager Hussain Al Balooshi suggests some millennials must adjust their outlook, such as spending on luxuries, balanced against treats for sensible fiscal behaviour.
“Reward yourself on the journey of saving; take an amount for something you want,” he said.
“In this environment, especially in the UAE, the UAE youth find it a bit easy. But with economic challenges they might find when they grow up, with more responsibility in their life, they will struggle managing their personal finance.
“It’s essential to start budgeting, saving and spending wisely in a way that will benefit them, and their children’s future. The generations of the ‘70s and ‘80s missed the opportunity to be financially literate.”
One way to encourage greater financial literacy among millennials is via products that engage.
Among them is Liv, a digital bank launched by Emirates NBD three years ago.
Head of Liv, Jayash Patel, said it offers an app that tracks how millennials spend their cash.
“You grow up, you do a driving test and drive your car; where is the test for driving your bank, how do you start managing money,” said Mr Patel.
“Millennials actually want to get the most out of their money. We realised there was a gap in providing them with the relevant information in an easily digestible way so they can take decisions. Liv was built by millennials, not bankers, working with the consumers.”
The panel discussion was an eye opener for American University of Sharjah economics graduate Rahsi Shafana, 21. She was among those unaware she could begin influencing her credit rating quite so young.
She feels some of her generation still need to wise up to financial literacy, compared to incoming foreign students.
“In general, when you come out of college, everybody is broke,” said Miss Shafana, from India, who has lived in the UAE since infancy.
“It’s not that they don’t have access to money, it’s just they don’t manage money well. In other countries people are independent from a young age; whether they’re managing student debt, scholarships, their grant … they are doing it themselves. That sort of independence is not expected of students or young people in the UAE, so they don’t build the right skills to do that independently. Most are usually dependent on parents."
However, Ms Shafana, also believes too much information can also cause trouble.
“Our generation is loaded with information, bombarded," she said. "Young people are finding it hard to differentiate between products. It’s not about access to information anymore, it’s about processing that information to be relevant to you. If it’s something easy to understand, they’ll be able to manage on their own, but to get that to translate into what you’re doing can be hard as well.”
As the boss of Souqalmal.com, Ms Musa readily helps guide – and educate - 750,000 site visitors to her site a month and said people should choose a source they trust.
“There have been surveys done; most people turn to friends and family - 50 per cent turn online,” she said. “I don’t think there’s too much advice. You’ve got to pick wisely, but you also need to understand who you trust. It depends on the level of financial literacy, who speaks to you best.”