Emiratis owing far too much, too young

Studies show that a worrying number of young Emiratis are falling into debt. Rym Ghazal and Bushra Alkaff Al Hashemi listen to what they think about money management

A Mercedes-Benz on sale in Marina Mall, Abu Dhabi. The young are increasingly being tempted by easy credit to get themselves in debt.

A survey says an astonishing 70 per cent of young Emiratis in Abu Dhabi are in debt, mostly through bank loans and credit cards. There are worries that they are being too easily lured into a 'buy today, pay tomorrow' lifestyle. Rym Ghazal and Bushra Al Hashemi report

For Mohammed Ali, life is full of temptations. The Emirati student is completing his third year of study at an American university and knows that his student allowance is more than enough collateral for US banks to loan him the money for an expensive car. But he also knows enough to say no.

"It has never occurred to me to do something silly like that," he explains. "I was raised by my father to look down on those who taken on debts for excess luxury, whatever the reason. My father had never borrowed money for a car or anything. The only time he took out a loan was the one that the Government gives to its citizens to build houses."

Sadly, young men like Mohammed are increasingly the exception to the rule. According to the Asda'a Burson-Marsteller Arab Youth Survey for 2010, 70 per cent of Emiratis are in debt, mostly to bank loans and credit cards.

The same survey says spending on clothes and mobile phones were the biggest items on the bill, followed by eating out.

Fatima, who asked that her real name not be used, learnt the hard way. While studying at university in Abu Dhabi, she also took on a job in 2007, using her first paycheque to buy a Chanel bag. Soon after, she says, she found herself "stalked" by banks pushing credit cards.

"They called me twice down to reception at work to say someone wanted to see me," she recalls. "When I went down, it was the bank people explaining my 'loss' if I didn't have one of their Visa cards."

After a while, Fatima returned to studying full-time and gave up work, believing she had set up a standing order to pay off her credit card balance. In fact she still had a small balance of Dh2,500, which after some months had gone up to nearly Dh8,000.

After a while, she says the credit card company started sending "threatening emails", saying that her name "would be put on a criminal list."

Fatima realises now that credit cards make you think "you have excess money, but the reality is that you don't. And the interest rate? Nobody talks about that."

From now on, Fatima has promised herself to avoid any kind of debt, including credit cards. Her experience was "overwhelming", she says. "Life is already a handful and this not what you want to add to all your other concerns."

Rayyan Al Hashemi says that borrowing money is fine, as long as it is done sensibly. An Emirati entrepreneur, still only in his mid 20s, he set up his own company using his savings, but has now taken out a loan to expand his business.

"I think the biggest problem is that people take out what they can't realistically pay off either from their salary or savings. If someone loses their job, they should have a plan B to pay off their debts," he says.

Financial literacy needs to be taught at an early age, Rayyan says. "At home with parents teaching children the value of money and the importance of saving what they get of their allowance.

"If, for instance, you give them two dirhams, tell them to save one and use the other. They don't need to spend everything on the same day."

Emirati parents, he notes, often give in too easily to their children's demands: "The child comes and says I want this and that, and they are given it automatically without much challenge or explanation.

"Fathers must be tougher on their sons, and tell them no, no more new phones if your current mobile phone is working just fine."

Rayyan would also like to see lessons in sensible financial discipline for newlyweds and for the Central Bank to create an advisory council for loans requests for nationals, granting them only when necessary.

"It takes a strong person not to be dragged into the world of appearances and materialistic possessions," he says."In Islam, debt is serious, it prevents you from entering heaven if you die leaving a debt behind. Your family then have to pay it off."

Salamah Ahmed graduated two years ago in Al Ain and had been working for a year. She has promised herself never to take a loan. Her father died when she was young so she was raised by an uncle. She saw what happened when her uncle's business collapsed in the economic downturn, leaving him with substantial debts.

"I saw what debts did to the family and his health," she says. "It is such a burden. I learnt a lesson."

That began with her first salary. While others were heading to the malls, she realised a car to get her to work was a priority. And when it came to making the purchase, she decided on a more modest model for which she could pay in cash after saving for several months.

Larger cars are not only more expensive, she says, but consume more petrol."

Mohammed Ali says that having to stand on his own two feet, far from home, has been the most valuable lesson. "It teaches you responsibility, and above all how to manage your money, your actions and your priorities."

When he finishes his undergraduate degree in the US, Mohammed says he has goals.

"A car to get around and wedding, of course. But before anything else I want to finish my master's. And pay for it."