ABU DHABI // A global financial consultant has countered popular opinion and said debt alone is not necessarily bad, but so-called deadly debt has become a cultural problem.
“Governments take debts, businessmen take debts - the worst debt is when you have no assets and no investments,” said Salah Al Halyan, managing director of Baizat, a financial consultancy.
While most people around the world are in debt for a variety of reasons, the majority of Emiratis have bad or “deadly debt” – that which is never cleared and not taken for an asset.
“The culture here in the UAE is that you start with debt from day one,” said Mr Al Halyan, an Emirati himself. “If you start work, then on your first day, banks will approach you because they now know you have earning power – especially if you work in the government. Then you are considered ‘a good potential loan taker’ so they tempt you and run behind you.”
Too many Emiratis, he said, fall prey to this temptation.
“It has something to do with the new culture, because income is guaranteed, and the spread of consumerism.”
Previous generations were more savvy.
“The old culture didn’t do that. They were not on welfare and everyone had their private business and took risks. With the new culture and oil money, everyone is comfortable and has a government job. They are dependent on the government, receive high salaries and the culture has become one of spending in addition to increasing consumerism around the world during the last 20 years, and increasing household debt.”
Saeed Al Mammeri, 70, said that life to be more simple and Emiratis were not as “showy”.
“Life was cheap and everything was free. My children were all in Government schools and health care was free. We didn’t travel and the furthest we would go would be to Oman or Bahrain. Now everybody wants to go to London and Paris. They want big weddings and expensive cars to show off to their friends.”
Mr Al Mammeri, a father of 10, said that when he and his friends took loans it was always for a business.
“I took my first loan in 1985 for a car rental shop which later failed because my employees were thieves and stole from me. I sold it.”
He has no debt now, but is vexed that each of his seven sons is in debt.
“I keep fighting with them and telling them to hold onto their money... To save it ... but they don’t listen. They want new expensive cars. Their wives want to travel abroad to show off to their friends, so my son’s takes out loans so they can travel. I’m worried about them. Now they are all in debt and burdened by their loans.”
While Mr Al Halyan acknowledged that debt is a problem worldwide, he said the issue in the UAE was that the debt-to-salary ratio is much higher. It is not uncommon to see someone take a loan where the loan payment is equal to 70 per cent of his salary. The acceptable ratio is 35 per cent.
“There are different kinds of debts around the world,” he said. “Abroad, it’s mortgaging loans but that is an investment. What we have is that per capita the amount of debt per person is higher for consumption purposes only ”
Total debt should not be more than 35 per cent of your income.
“Most people have around Dh20,000 salary but they will go out and buy a Dh400,000 car. So they end up paying Dh12,000 every month for the loan. If they have a credit card then there is another obligation.”
This sort of debt is unsustainable, he said.
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A study by McKinsey & Company in 2011 showed that 70 per cent of UAE nationals younger than 35 are in debt. Car loans are the most popular with Emiratis and unregulated banks do nothing to improve the situation by encouraging locals to take out unsecured loans up to four times their annual salaries. Non-payment of loans has led to countless arrest warrants and jail time. Last year, 3,638 Emiratis had cases filed against them in Abu Dhabi judicial courts for bounced cheques. As a result, the Emirates Foundation and the Ministry of Education have teamed up to educate young people, and tackle the problem of financial illiteracy that plagues the country.
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