Savers struggle to stay on track
As the cost of living increases in the UAE, it is becoming ever harder for residents to save, particularly with higher school fees and mounting debts for some. In this era of job insecurity, survival strategies have become essential, Suzanne Locke writes
As the sole breadwinner for a family of four, Nooruddin Matheranwala has always strived to save for the future.
But the banker says he is now digging into his savings to support them all, particularly as his incentives and bonuses have been reduced at work.
“The cost of living has certainly shot up,” says Mr Matheranwala, 41, who has lived in Sharjah for the past nine years. “While this has been going on for some time, since the economy started restructuring, the increased expenses that have surfaced this year seem worse. From the regular grocery items to the medical fees, all these necessities have witnessed an increase.
“In addition, my daily expenses have grown higher, making savings a thing of past.”
While the rising cost of living and stagnant salaries are affecting UAE savers, National Bonds Corporation blames a “whirlpool of loans” for a plummet in savings in the country in 2016 compared with 2015.
In its annual savings index, released last month, it found that 55 per cent of those surveyed saved less in 2016 than the previous year – although an overwhelming 89 per cent did not think their savings were adequate.
So what is causing this drop? More than 40 per cent of respondents say they are being put off saving by the high cost of UAE living, 27 per cent by the risk of losing their job and 18 per cent by education hikes, according to the index.
More than two- thirds of respondents had seen their household expenses hit by increased rents and half by education and utilities hikes. And the burden of responsibility is heavy: some 59 per cent of respondents are the sole earner in the family.
This is certainly the case for Mr Matheranwala, who noticed price increases of about 10 per cent on his grocery bills. “Strawberries, mangoes and coconuts have seen a dramatic rise,” he says.
His children’s school transportation costs have also increased by 10 per cent in the past 12 months he adds.
While rising daily costs are certainly an issue, the National Bonds survey also finds one in six respondents have a loan or mortgage, and almost a fifth have two or more. Three-quarters have a credit card, although the majority say they pay it in full each month.
“A significant number of people fall victim to the whirlpool of loans due to their illiteracy in budget management and risk assessment,” says Mohammed Qasim Al-Ali, the chief executive of National Bonds.
“Mounting loans remain one of the most likely factors to impact savings plans. Settling these debts is integral to achieving financial health and happiness.”
Michael Routledge, the founder of savemoney.ae – which offers saving tips and advice on paying off debt – says oil prices
‘ A significant number of people fall victim to the whirlpool of loans due to their illiteracy in budget management and risk assessment Mohammed Qasim Al-Ali chief executive of National Bonds
have affected job stability, while financial products are not offering “much of a return”. “The percentage of money remitted to home countries is often up to half of someone’s monthly salary and leaves little to live on, let alone save,” he adds.
He blames the cost of living – but also the UAE mentality for expats to “keep up with the Joneses”. Wealth and wellness coach Rasheda Khatun Khan, one of the advisers on The National’s The Debt Panel, agrees. “People come here probably earning the highest salary they have ever made, yet 85 per cent manage to get into some form of debt,” she says.
She advises people to “pay themselves first”: to consider savings as an expense, and put it away as soon as they get their salary. “People pay bills then decide what is left to save, if anything. But saving is putting money away for a future expense. Put it away then budget on the rest,” she recommends.
But Ms Khan concedes expenses, school fees and rents have risen, “and not in line with salary increases”. People have even taken pay and bonus cuts.
Stuart Ritchie, a chartered financial adviser with AES International, also thinks that household expenditure is increasing at a faster rate than income – al- though he also believes more people are dipping into their savings for seed capital for private business ventures.
But he warns that an expat’s time in the Middle East making tax-free savings is “limited”, and savings need to be prioritised.
The positive news to come out of National Bonds’ latest annual savings index is that 68 per cent of people who do not save now plan to start in the next six months, a figure that has more than doubled from the previous year’s intentions, while almost two-thirds of savers plan to increase their savings.
“Financial insecurity around jobs and the world economy mean people prefer to have cash piled up in their bank accounts or even spend it to feel better,” says Steve Cronin, founder of WiseUAE.com, a non-profit organisation that helps expats invest their own wealth. While Mr Matheranwala may not have the funds to save, there is some good news – his rent has stabilised at Dh50,000 for a two-bedroom apartment.
“This is a blessing considering all other expenses that I have to put up with,” he says. “I expect the rising cost of living trend will continue, with VAT taxes to be introduced soon.”