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UAE consumers need to invest in financial literacy

Financial literacy in UAE is still low compared to mature markets

  • Shoppers at Deira City Centre. The financial literacy level among residents, including individual investors, iImage Credit: Clint Egbert/Gulf News Archive
  • Binod Shankar, director of the Genesis InstituteImage Credit: Supplied
Gulf News

A lot of people in the UAE may be earning more than their counterparts in other markets, but still there are not many consumers who are really fluent in the language of money.

The financial literacy level among residents, including individual investors, in the UAE is still low compared to other mature and developed markets like Europe and the United States.

According to Binod Shankar, director of the Genesis Institute, a provider of financial training solutions in the UAE, people in the country need to learn more about the basics of money management, financial planning and responsible borrowing, among others.

There is also a lack of understanding among individuals on debt versus equity, power of compounding, as well as how bank loans, credit cards and debit cards can endanger one’s finances.

“People sometimes take loans without realising how much interest they’re paying and the impact on their cash flows. They take loans at interest rates that look low and later rapidly go up. These are written in the contract but borrowers just don’t bother to read them,” said Shankar in an interview yesterday.

“The UAE has a lot to catch up. While it’s advanced in terms of hard infrastructure, such as bridges, roads, airports, and everything, the knowledge infrastructure in many areas including financial literacy is [still a bit behind].”

Part of the problem is that there is a pervasive culture of spending in the UAE and there is no emphasis on educating the consumers so that they are able to understand complex financial products and make sound financial decisions. Financial institutions, especially banks, are not transparent enough in their offerings and customers don’t do due diligence and invest in their own literacy needs.

“There’s a lot of inclination among expatriates and even locals to not save much and to spend a lot and it’s easy to spend a lot because there are so many avenues for spending. You can dine out and you can party, go to concerts, go to expensive holidays, etc. Dubai is a fantastic place to live and work in, no doubt, but it also offers a lot of opportunities to spend money.”

“When people borrow money, they often don’t do proper diligence. They just walk into a bank, sign a piece of paper and suddenly, they have a large liability. This is not unique to the UAE, however, it’s happening in other markets as well.”

MasterCard’s Financial Literacy Index in 2012, which polled more than 11,000 respondents worldwide, however, showed that UAE consumers have become more financially savvy over time.

The UAE consumers’ literacy ranking increased from the sixth place in 2010 to third place in 2012. Consumers in the UAE emerged as the most informed in the Middle East when it came to knowledge about investments.

A policy paper by the World Bank noted that many policymakers around the world are recognising the importance of financial literacy and of investing resources in financial education programmes. The lack of financial knowledge has been partly blamed for the financial problems faced by many economies.