While copying your friends' spending habits may leave you in debt, for some residents it can actually improve their fortunes
Lessons learnt from 'keeping up with the Joneses' in the UAE
When Waleed Saleh left Dubai in 2005, he asked his parents for $15,000 to pay off his credit card debt. Now back in the country after a decade at home in the US, he has learnt the hard way to focus on saving and not to be tempted by sports cars and Friday brunches.
“Last time I left here the system was working me; this time I want to work the system,” says Mr Saleh, 45, managing director for the regional branch of an American market research firm.
“I was trying to keep up with the Joneses back then and you see it all over the place still today: people living in houses bigger than they need, hitting the nightlife scene, driving cars they don’t need.”
The theory of ‘conspicuous consumption’ was first identified in 1899 by the economist Thorstein Veblen in The Theory of the Leisure Class. It described how the ‘nouveau riche’ bought luxury goods to display their wealth and boost their social status.
Behavioural economist Fernando Zapatero, of the University of Southern California’s Marshall School of Business in Los Angeles, says that a lot of our decisions are based “primarily on this comparison effect”.
US-born Mr Saleh’s parents emigrated from Egypt in the 1960s but he chose to leave America for university in Cairo, where he met German-Egyptian wife Daina. He has lived in Dubai three times in all, first in 1997 to 2000 and then in 2003 to 2005 before returning in 2015. This time he is living alone, with Ms Saleh and their eight-year-old son still in Chicago and their daughters, aged 21 and 18, both at university in the US.
“I am running four households, in a way,” says Mr Saleh. “Most students leave with $150,000 in debt but we wanted the girls to have a fresh start in life, coming out of college debt-free. It will allow them to do what they want, rather than having to pay back student loans. But it’s very expensive.
“Before, we weren’t saving, we were out every Thursday night, every Friday brunch. Friends call me and invite me out now, but I’m just as happy putting on Netflix and playing PlayStation over Skype with my son. I can’t remember the last time I went to a nightclub. I don’t care anymore.”
Mr Saleh says he sees colleagues in the office racking up credit card debt and buying a Starbucks coffee every day.
"I try to tell them, ‘I’ve been there, be careful; you never know what’s around the corner’. I wonder how youngsters survive here," he says.
British-Australian Emily Atkinson, 23, who grew up in Bahrain and Saudi Arabia, graduated last year from university in Manchester, England, and moved out to Dubai to live with her father last September, planning to get a full-time role in events - and, of course, to save. “It didn’t really turn out the way I planned,” she admits.
She landed a three-month paid internship, earning Dh3,000 a month at a small events PR agency. “Unfortunately, they couldn’t afford to keep me on,” she says. While looking for a permanent job, Ms Atkinson took on freelance work at events, promotions and parties. She can earn Dh4,000 to Dh6,000 a week working at an event, or Dh75 to Dh150 an hour as a hostess for the evening. “It’s good pay when the season is high, from September to May, but, when the summer months hit, it’s very quiet and a constant scrabble to get jobs.”
Ms Atkinson is the only freelancer in her circle of friends, who earn around the Dh10,000-a-month mark, and says it can be tough earning so sporadically. However, travel has become her priority rather than a bustling social life.
“I don’t really get FOMO (fear of missing out) too much because I always have my mind set on my passions,” she says. “Seeing some place new trumps going out for another brunch.
“Other people spending lots of money going out here just doesn’t bother me. They have stable jobs so they can do that. I’m going at my own pace and on my own journey - comparing myself to others won’t get me far.”
Ms Atkinson says she will find “alternative activities” to do around the UAE that don’t cost too much and spends around Dh500 a month on socialising, preferring to spend time playing volleyball on the beach or at the pool. But she admits she could not afford her lifestyle on her salary if she did not live at home.
But keeping up with the Joneses can, says Mr Zapatero, also have a beneficial effect; it can spur some people to positively compete, to work harder and invest more.
Mr Saleh agrees and says it was looking to “pragmatic and shrewd” friends who had already paid off their mortgages in the US or UK that spurred him and his wife on to see a financial adviser in Chicago. They are now over-paying their mortgage and are on track to pay off their 30-year loan in 11 years’ time, eight years early.
He has also kept his UAE spending to a minimum, playing golf “twice a month instead of three times a week”, leasing a small SUV rather than buying a car and making lunch at home. He rents a one-bedroom apartment in Dubai Sports City for Dh75,000 a year - “half the price of the Palm or the Marina”. “If I’m going to spend money it’s going to be on the golf course or on nice vacations.”
His company, MarketVision Research, provides a retirement fund and matches his contributions. “I take what I need to live here and send the rest home,” says Mr Saleh. “A certain amount goes out directly to the retirement fund and into savings, I put money aside for US taxes then the rest goes to the two huge educations - $60-70,000 a year - plus Daina’s living expenses.”
Sam Instone, chief executive of Dubai-based financial advisors AES International, says all residents looking to save need to remember that “no one cares more about your financial plan and outcome than you”. Track what you spend, he advises. “When faced with your spending on a daily basis, you soon cut back and think harder before shelling out.”
He points to advice from The Millionaire Next Door author Thomas J Stanley, who says that if you spend all your income, “you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.”
“Ultimately, the younger one starts to invest, the better, because of the power of compounding, says Mr Instone. “If you are patient enough, start early enough and leave your wealth alone for long enough, market returns are remarkable generous. Live well below your means and invest the rest - you’ll become wealthier.”
Goal-setting websites like Stickk, Lifetick and Coach.me use peer support to help people create and stick to goals, including financial ones. Assigning a ‘referee’ to oversee users’ progress doubled their chance of success, analysis of Stickk’s users found.
But there is a risk that comparison can be so disheartening that people just give up. In a 2011 study by the US National Bureau of Economic Research, employees at a manufacturing firm who had not participated in their company’s pension scheme, or had not contributed enough for the company to match their payments, received letters encouraging them to pay in more and highlighting colleagues who were already doing so.
Employees who received this information were less likely to enrol in the plan or increase their contributions, the study found. The researchers said that they were discouraged about their own choices when comparing themselves to others.
But Mr Instone says you just need to put your blinkers on. “Anything that can scupper your future financial wellbeing needs to be ignored.”
Mr Saleh says he still gets lavish invites, despite his hermit lifestyle.
“With close friends you can be pretty open and say, ‘I can’t golf this week; I spent a lot this month.’ With other groups, who may want to rent a yacht for Dh15,000 for the night and split the cost, I’ll just say I’m busy.
“We had our kids so young. As friends our age have had kids, I’ve that noticed their perspectives shifted too, once they had that responsibility on board. Your mind set changes as your life stage changes.”