x Abu Dhabi, UAESaturday 22 July 2017

Splash out or save up? Both are crucial

Economists have long debated the merits of saving versus spending. Many argue consumers splashing their cash is vital to greasing the wheels of economic recovery. But they can go too far.

Economists have long debated the merits of saving versus spending.

Many argue consumers splashing their cash is vital to greasing the wheels of economic recovery.

They point out the output of more than half of most developed nations is propelled by people buying goods, everything from cars to washing machines to buckets.

Sluggish consumer spending in Europe and Japan is one of many reasons why those economies are struggling to rebound.

But it is also true excessive spending and borrowing by people living beyond their means was one of the catalysts contributing to the global financial crisis of 2008.

As a result, many households are still repairing their balance sheets by paying down their debt and boosting savings.

Most economists, then, believe a combination of both saving and spending is needed.

"Both of them are essential," says Tamas Kassai, a senior consultant at Gargash Insurance Services. "Consumption supports industrial production and retail and wholesale activity. But, on the other hand, savings support the financial sector of the economy and help banks and insurance companies invest in markets to create wealth."

Most Arabian Gulf countries are generally considered to have more of a spending than a savings culture. This can be useful. Saudi Arabia's retail sector received a lift last year after King Abdullah bin Abdulaziz Al Saud granted public sector workers two months' salary as a bonus.

But there are also pitfalls. The UAE Government's launch last year of a Dh10 billion (US$2.72bn) fund to help indebted Emiratis was evidence of that.

Now the Government is keen to address the balance. Launching workshops to educate people about the importance of saving is a good first step. One way it could do more would be to consider how to help people prepare for when they stop working.

Retirement was the number one priority for saving money cited by respondents to the National Bonds UAE Savings Index survey.

The Dubai Government last year sought advice from the World Bank about offering pensions to foreign workers.

Widening out existing pension schemes for Emiratis to all nationalities would help to bring more money into local money markets and build the institutional investment base that local markets require.

tarnold@thenational.ae