When traffic on The Walk, an ocean-front promenade in Dubai Marina, crawls to a halt after sunset, diners are treated to a free luxury car show. It's the weekend parade of the latest-model Bentley, Porsche, BMW, Mustang, Hummer, Lamborghini and Mercedes Benz cars driven by locals and expatriates.
It's not unusual for the UAE's residents to flaunt their wealth. The UAE is a label-driven society, where personal appearance is very important and brands are synonymous with social status and success. Employees, for example, are expected to be "impeccably dressed during meetings and working hours, and designer clothing and footwear is the standard work attire," says Fflur Roberts, head of luxury goods research at Euromonitor International.
Besides, more people in the UAE than in any other country tend to blow their money on designer clothing, six-figure wheels, diamond-studded handsets, expensive jewellery and extravagant vacations. "More than a third of residents in the UAE are likely to purchase a luxury product at least once a year, a proportion that is much higher than in many other markets," Roberts says in a report.
In January, a high-roller blew nearly half a million dirhams in one night at the glitzy L'Etoiles club in Abu Dhabi, just days after another big spender had splurged close to Dh400,000 in a birthday bash at Dubai's Cavalli Club.
And one can't miss the fanfare, glitter and the hats at the world's richest horse race, the Dubai World Cup. All these go to show that there is no dearth of money in this part of the world, observes Milind Vinod, a finance professor at Heriot-Watt University in Dubai.
Vinod says there has been an aura around Dubai of "do buy, do buy" over the last 22 years and it has consciously fed the perception among the local community that this is a city of wealth and class. "And if you don't follow this trend, you are an outcast."
Social pressure
There are two types of high spenders in the UAE, those who have the money and those who don't but spend anyway. The latter either save for months or borrow money for the "It" handbag or glitzy ride to fit into the social circle.
Regardless of their personal income, consumers are cautioned against indulging in exorbitant lifestyle as it can be a financial pitfall. Experts say that people who have a love affair with luxuries often overlook financial planning and find themselves trapped in debt.
Steve Gregory, managing partner at Holborn Assets, observes that while the global economic outlook remains grim, people in the UAE still lead indulgent lifestyles, as evidenced by crowded malls, coffee shops and restaurants on weekends. However, the high spending mode could be fuelled by credit instead of rising personal incomes.
Gregory's friend, a luxury car salesman in the UAE for ten years, was recently made redundant and blames the lack of sales on the 25 per cent deposit required by the Central Bank. "So, I am asking myself whether the renewed appetite for luxury goods is fuelled by credit cards and personal loans.
"I cannot be sure. Of course, the very wealthy may be simply fed up of investment returns, or the lack of them, and deciding to blow some money rather than invest it," Gregory says.
Richard Taylor, a chartered financial planner at Acuma Wealth Management, sees a "more gradual return to confidence" among consumers, rather than a full recovery.
"I'm not heralding the return of the global financial crisis, but there's still a lot of recovering to be done yet and therefore I would definitely advise people to err on the side of caution when it comes to buying luxury items," he says.
Need to belong
Taylor says that regardless of the econ-omic scenario or one's financial situation, borrowing from banks purely to buy luxury goods is an enormous mistake. "I cannot warn people off it enough," he says.
Annie Crookes, a psychology lecturer at Heriot-Watt University in Dubai, explains that spending money on luxury brands and other unnecessary goods is more linked to fulfilling one's need to belong and to feel achievement or personal success, rather than function.
"Owning and spending on luxuries has become tied to self-esteem," Crookes says.
"Therefore, in a recession and times when we may not actually have the cash to afford luxuries, we may still feel the need to purchase them as a sort of security blanket to comfort ourselves and buffer our self-esteem from the realities.
"Also, modern western society tends to be very positive about luxury brand ownership, so when you buy the Prada handbag, your friends congratulate you, or buying the expensive car gets a nod of approval from the boys.
"In this way, we send quite powerful positive reinforcements to each other, which encourage continued luxury spending — our brains want another ‘hit' of that social approval."
There's nothing wrong with treating yourself to a luxury item from time to time, as long as you can afford it and you're mindful of your expenditure.
But if you habitually blow your money, you can put your finances in danger. The next time you feel the urge to buy, consider a few points before you open your wallet:
• Part of why consumers resort to luxury brands is because they want to boost their self-esteem and feel a sense of success. To curb this craving, Annie Crookes of Heriot-Watt University says you need to be "more overtly mindful" of your non-material successes. Try setting some personal goals instead, such as learning a new skill or a fitness challenge to feel success that is not tied to shopping. When spending time with your family, take a moment to reflect on this "luxury" and how it makes you feel. "Often, we overlook these hidden but far more important measures of success like family, friendships or achievement at work, not financially," she says.
• The next time you feel like buying the latest gadget, take a moment to consider exactly how happy it will make you in the long term. "Of course, we all get that guilty rush from spending money and we imagine how exciting it will be to wear that new pair of expensive shoes in front of your friends, but what about after that, or a year from now? For some, taking a little step back to consider the long-term value of the item can give enough space to break the craving and urge to buy," Crookes advises.
• Peer pressure drives people to spend on luxuries. Before you get that product your friends have been raving about, or before you go out with them to expensive clubs, consider distancing yourself. "The most important thing is to get away, at least temporarily, from your social circle as I believe that it is peer pressure that results in the most unnecessary spending," advises Richard Taylor of Acuma Wealth Management. "I'm not suggesting that you abandon your friends forever, but saying ‘no' can often be one of the hardest things to do. Take up a hobby you enjoy, can afford and will take up your free time."
• Put a limit on frivolous spending. "That will be easy for people who manage sensible budgets," says Steve Gregory of Holborn Assets. "For the rest of us, we may need a different strategy called ‘pay myself first'. This means setting an amount paid into your own savings before anyone or anything else is paid. You prevent the young person spending the old person's money, as one of my colleagues puts it." Try to set aside 20 per cent a month to your future needs. Once you stick to that, your spending on luxury items is reduced, as you will have less to waste on things you don't need.
