With 70 per cent of Emiratis under the age of 35 in debt – some of them with cripplingly large loans – the call for financial literacy to be taught at school is timely. As The National reported yesterday, the Emirates Foundation and the Ministry of Education have teamed up to ensure Emiratis will learn how to manage their money for when they start working.
This is not to say that debt is implicitly bad. There are good reasons to take out loans, such as to buy a home or for further education to improve career prospects. But equally there is bad debt, where money is borrowed to sustain an unaffordable lifestyle or for ephemeral expenses such as fast cars and lavish holidays. It is important for everyone to appreciate the difference.
This is hardly an issue unique to the UAE, but there are special circumstances that may make the situation here particularly acute. While there must be a degree of personal responsibility when it comes to financial literacy, so too the banks must act prudently. The example cited yesterday of the Emirati who was able to borrow Dh450,000 on a monthly income of Dh21,000 makes for chilling reading and reflects as badly on the banks as it does on the imprudent borrower.
Part of the problem is that on occasion, the government has helped Emiratis who have incurred debts so large that there was no reasonable prospect of repayment. One wonders how much this influenced banks when assessing applications by nationals, with the result that loans are more often made by sales people who look only to their own commission rather than credit officers who take an actuarial approach to the prospects of the loan being repaid.
The advent of the Etihad Credit Bureau, to share debt information between banks, should mean an end to such imprudent lending but the continuing habit of banks cold-calling residents offering huge loans suggests this problem persists.
Financial literacy will help us ignore these siren calls and manage our money responsibly. But banks must also be responsible. Deliberately targeting those who are unable to pay is unacceptably predatory practice. The banks must face up to their responsibility – or they cannot be surprised if they find regulations and laws brought in to curb them.
