x Abu Dhabi, UAEWednesday 17 January 2018

Lead us not into temptation: learn from UAE’s low income workers

Often in the UAE it’s hard to save money, given the range of luxury goods and fancy restaurants around. However, many lower earners provide admirable examples to follow, including investing in National Bonds.

With its trendy restaurants, high-end shops and luxury hotels, the UAE is brimming with alluring ways to spend money.

There are so many temptations, in fact, that saving money can sometimes be overlooked.

But it seems many residents could learn from the example of some of the nation’s lowest income earners.

Their limited wealth means they don’t dine at restaurants and are more likely to be building a mall than shopping in one.

But their modest pay does not prevent them from saving a fair chunk of their earnings, according to the latest survey by National Bonds Corporation, the Sharia-compliant savings scheme.

As many as 22 per cent of the lowest earners responding to the company’s Savings Index said they managed to save at least 10 to 20 per cent of their monthly income.

A total of 31 per cent of respondents were either saving regularly on a monthly basis or every three months. The response was 2 per cent higher than the average saved by those earning more money.

“Lower earners are here without their families, so spend less and their lifestyle is easier and simpler,” says Mohammed Al Ali, chief executive of National Bonds. “They don’t go to cafes and don’t go on holiday. Their objective is to save and they’re very disciplined and very organised compared to other groups.”

Every year, the savings scheme asks residents from across the GCC about their personal financial habits, including how much they are managing to save. This year, for the first time, it included lower earners, collating the responses of more than 200 workers with a monthly income of less than Dh3,500. Altogether the study covers 1,707 UAE and GCC residents.

The study showed low income earners were generally putting more of their money aside, with more than one in four saying they were saving less than 10 per cent of their personal income, with a further half saving between 11 and 30 per cent of their personal income. In comparison, a third of all income groups said they were saving less than 10 per cent of their personal income, with a fifth saving between 11 and 30 per cent of their personal income.

In a bid to attract more blue-collar workers, in April National Bonds lowered its threshold for entry to the savings scheme and revamped its prize structure to include more frequent smaller cash prizes.

It lowered its minimum purchase of bonds from Dh3,000 to Dh100.

The move was in response to research showing labourers managed to retain up to half of their earnings in their host country after sending the remainder home.

In recent years, more low earners have entered the formal financial system by opening bank accounts, as required by the government’s Wages Protection System.

“The response has been very positive,” says Mr Al Ali. “We had an increased number of customers on a monthly basis and had lots of smaller income groups joining the scheme. That’s our aim. Our aim is to be open to everyone, including the lowest earners of between Dh1,000 and Dh3,500 per month.”

Since National Bonds launched its savings index in 2011, the results have shed light on the savings habits of residents.

As in previous years, this year’s survey has again showed a lack of propensity to save.

Across all income groups, volume of savings fell 3 per cent from last year to reach 48 per cent in this year’s index.

The UAE recorded the most positive savings environment, with a quarter of respondents indicating it was a good time to save. The result was higher than the response given in other GCC states.

But Mr Al Ali still feels the data largely pointed towards the absence of a savings culture.

“One of the main challenges is lack of financial awareness,” he says. “We have a mentality of living day to day and like to think God will be generous. There are also some traditions like being generous by inviting friends to shisha and paying for everyone.

“We have this unhealthy jealousy against others as to why they have a more beautiful car, more beautiful bag and all this impacts badly to saving.”

Climbing housing rents mean saving for many UAE residents is likely to become trickier in the year ahead. Rental rates for mid-range villas and apartments in Dubai have accelerated by 20 to 30 per cent in the first nine months of the year compared to a year earlier.

Grocery and house rents were already cited as the top two expenses for respondents to this year’s survey. Cost of living was also highlighted as a key factor hindering regular savings by low income earners.

“Inflation is a growing challenge,” says Mr Al Ali. “What we advise our customers is you have to build in inflation rates into your savings rates. You have to decide how much savings you need to put aside each month in order to counter the inflation rate over the life cycle of your investment.”

Higher inflation risks limiting the spending power of residents of all income groups, while constraining the amount of free cash to save.

Those who have saved with National Bonds, however, can have their savings topped up via any winnings they net in the daily and monthly prize draws as well as the annual profit rate.