x Abu Dhabi, UAESaturday 20 January 2018

Everyone in the UAE must understand the dangers of debt

Borrowing for consumption - rather than investment - can lead families into trouble, new survey finding suggest. Intensified public education is in order.

New findings about the extent of household debt in the UAE shine like a warning light. Almost 60 per cent of Emirati heads of households in Abu Dhabi are in debt, according to survey results reported yesterday in The National. Another recent news report noted that over 70 per cent of Emiratis under age 30 owe money.

For any household, and especially a new one, credit can be useful, even essential. But when personal borrowing gets out of control, it can quickly become a crippling burden.

And personal borrowing grew by 17 per cent from 2011 to 2012, the UAE Central Bank has reported. A separate survey last year suggested that many Emirati families spend more than one quarter of their income in servicing their loans.

The new survey, for the Abu Dhabi Department of Economic Development, turned up some revealing data: car loans amount to more than 60 per cent of the debt, followed by loans for housing and for weddings.

To be sure, a place to live is essential, and a car is nearly so. But against the background of this country's elevated GDP per capita - at over Dh177,000 ($48,100), it is the world's seventh-highest - those details suggest a troubling degree of overconsumption.

Borrowing to invest - in a business, say, or an education - promises revenue from which the loan can be repaid. But borrowing to have a bigger car, or a grander wedding, can be less practical. The demands of social status and youthful aspiration can lead to credit carelessness which in turn can have damaging effects. For example, studies around the world suggest that household debt is one of the prime indicators that a marriage will end in divorce.

In this context the Sharjah Wedding Fund, which makes Dh70,000 loans those about to wed, is to be commended for advising couples and their parents to rein in marriage spending.

Banks, meanwhile, continue to lend freely, serene in the knowledge that the government has been generous in helping Emirati families who have fallen into the debt trap. With or without such help, however, swollen debt balances for the sake of short-term consumption help nobody.

Improved public education is in order. The Emirates Foundation for Youth Development has started a programme to spread the word about the dangers inherent in borrowing for consumption. But schools and the government, too, must help inform the people, young and old, of the dire consequences of excess debt.