Teenagers and young adults are turning to high-end luxury items such as handbags, phones and cars just to fit into a richer social circle, even when they cannot afford them.
With the encouragement of personal loan financing from numerous banks across the UAE, Hermes Birkin bags, Vertu phones and luxury holidays are becoming popular "necessities" for young Emiratis and residents of the UAE.
"I had clients mostly in their twenties, at the beginning of their careers, who came in the bank and asked for personal loans to buy a Dh500,000 (US$136,135) luxury car when their salary was no more than Dh14,000 a month," says Abdalla al Aboodi, an Emirati relationship manager at the Commercial Bank of Dubai.
Luxury cars are not the only things on the wish lists of young adults. "Vertu phones are highly demanded by young Emirati men as well," Mr al Aboodi says. "I had a client whose salary was Dh8,000 per month who asked for a Dh30,000 personal loan to buy a signature Vertu phone.
"This doesn't go for UAE nationals only. Professional Arabs and Europeans such as investors and managers are very interested in luxury products, especially real estate and sport cars. Most of our clients who ask for personal loans are men. I rarely deal with young women."
A recent study conducted by Mayfair Wealth Management explains why; the estimated wealth of Khaleeji women (women from the GCC countries) was $40 billion in 2009. Advantage Consultancy predicted this wealth - mostly inherited - would more than double this year and reach $100bn. The study also shows that unlike men in the Gulf who invest their money in property or equities, few women do, which gives them more access to cash.
Even with the excess of disposable income owned by some Khaleeji women, Khulood Faisal, a 29-year-old Yemeni administrator at a financial institution in Abu Dhabi, says there are young women who do not fall into that category.
Young women who cannot afford luxurious items take out personal loans. Others create financial co-operatives in which a group of friends finance each other just to fit in with their rich friends and high-end social groups. "My girlfriends take personal loans from banks mainly to buy expensive jewellery and watches like Rolex," says Ms Faisal. "Their friends are rich and can afford it and they want to fit in as well. It's all about social status."
Ms Faisal says that if luxury stores such as Hermes provided customers with options to pay in instalments, she would go ahead and purchase a Birkin bag priced at more than Dh30,000. "I know a Birkin bag is not very pretty, but I would buy it for its name and its representation of high social class," she says.
It doesn't stop at handbags and cars. These young adults are hoping to fit in more by also taking lavish holiday trips. "One of my friends took a personal loan of Dh150,000 and travelled to Europe, stayed at fancy hotels and rented luxury sports cars to fake a rich life for a small period of time and mainly to seek attention," says Mohammed AK, a 24-year-old Emirati diplomatic attache. "The funny thing is that he's 27, recently married, doesn't save money to buy his own house, and already owes over Dh1 million to a bank."
Although easy personal loan financing services have been key in helping these young adults with their quests, the economic recession has had a huge impact on that behaviour, especially in Dubai and Sharjah.
"Before the recession, asking for bank loans to buy luxury products was very common and frequent," says Mr al Aboodi. "It still exists, but not as much as before. Clients now pay much attention to interest rates and how they will affect their payments.
"And banks are now very cautious. The credit risk policies have changed, and banks pay a lot of attention to a client's consumer behaviour before agreeing to issue a personal loan."
That economic impact may have had an effect on the behaviour of clients in Sharjah and Dubai, but it certainly didn't affect it as much in Abu Dhabi, according to Mohammed AK. "Abu Dhabi's economy was barely affected by the recession," he says. "Salaries are still stable; in fact, they have increased, and as for what I can see, young Emiratis are even more eager than before to purchase luxury items.
"However, I think that the economic recession has taught us an important lesson: to think about the future, save money, and plan at least two years ahead."
A Manar al Hinai is a graduate of the University of Leeds, works at Invest AD, an Abu Dhabi investment company, and carries a Lady Dior bag, a gift from her father