An expatriate’s generous salary does not always come with the knowledge of how to make the most of that extra cash.
A recent Standard Life study on the saving, spending and investment behaviour of western expatriates across the UAE shows that while the country offers an ideal environment in which to live, work and save that many take full advantage of, just as many are looking to splurge on a better lifestyle.
According to the research, while 94 per cent of the 200 people surveyed said the spend the bulk of their disposable income on savings and investments, 97 per cent also admitted to splashing out on luxurious lifestyle choices. In comparison, luxury spending among respondents was much lower in Singapore – at 51 per cent – and in Hong Kong – at 47 per cent.
“Many western expats in the UAE come to live here because of the countless opportunities that this country has to offer, of which one of the biggest benefits is the tax free salary,” says Chris Divito, Standard Life’s chief executive for the Middle East.
“A tax free income provides a great opportunity which may lead to relatively higher savings and in turn allow expats to save more on a regular basis. We believe our research offers consumers a glimpse into their various savings and spending habits and creates an opportunity to revisit any financial issues they may have.”
However, the temptation to spend on a better lifestyle does not always factor in rising living costs, including higher rents, food prices, utility bills and school fees.
“We have been here for seven years now and our savings are minimal,” says Helen Flanagan, a British teaching assistant in Dubai. “The school fees are astronomical and the international package my husband receives now barely covers basic necessities. It seems we spend a lot more here on rent, schooling, food and utilities than we would at home. The UAE offers a fantastic lifestyle and a wonderfully safe environment for the children, but when it comes to saving as well, that is nigh on impossible.”
Financial advisers in the UAE say that keeping a detailed record of income and spending will typically show that a greater amount of money goes unaccounted for here than in other countries.
This usually goes towards socialising and family lifestyle choices and is the sort of spending that could instead be used to build savings.
Financial advisers say that education and improving one’s financial literacy can help people to maximise this money.
“It takes time for people to become accustomed to having the disposable income that’s on offer here in the UAE,” says Julia Olson, a senior associate at Holborn Assets. “Few people disembark a plane at DXB and will walk straight into a financial adviser’s office and ask for help in saving for their future. There’s often a big temptation to spend in the first instance. It is our experience that people are sucked into this lifestyle and then they become ‘savings averse’.”
Standard Life’s study shows a greater number of respondents seeking professional financial advice in Singapore (49 per cent) and Hong Kong (53 per cent) compared to the UAE.
There may also be industry obstacles to expatriates seeking more advice and help.
“The financial services sector in the UAE is a very lightly regulated realm,” says Andrew Prince, a financial planner at Acuma. “It does not give the industry a professional sheen when a person can have one job at the end of the week and be a financial adviser at the start of the next with little or no training. The same was true of the UK in the late 1980s and that caused huge problems.”
While the way the financial services industry is regulated may go some way to explaining why expatriates in the UAE are averse to looking for financial advice, the availability of credit cards and loans may be more relevant.
Personal loans to residents increased by Dh3.8 billion in June, the sixth consecutive month of increases, according to data from the Central Bank. It was the biggest monthly increase in the three years of Central Bank records. Total personal lending increased by Dh15.3bn in the first half of this year.
An online survey this year from compareit4me.com, a UAE-based price comparison website, polled 1,832 residents on their consumer finance habits and found that 20 per cent had made use of a credit card to cover repayments on a personal loan or car loan in the past six months.
“With an increasing number of UAE western expats paying off their financial liabilities, it is leading to greater strain on their long-term savings and investments,” says Mr Divito. “Financial stability is a key priority for expats, and it drives them to plan for their future, but at the same time our research has found that spending on non-essential luxury items is also a priority for consumers.”
Interest rates on UAE credit cards are higher than in many other countries and for other types of debt. The average monthly percentage rate on a UAE credit card was 2.9 per cent at the start of this month, equivalent to an annual rate of 41.1 per cent, according to data from souqalmal.com.
That compares with an average annual interest rate on personal loans of 6.1 per cent.
ascott@thenational.ae
The alternatives
• Founded in 2014, Telr is a payment aggregator and gateway with an office in Silicon Oasis. It’s e-commerce entry plan costs Dh349 monthly (plus VAT). QR codes direct customers to an online payment page and merchants can generate payments through messaging apps.
• Business Bay’s Pallapay claims 40,000-plus active merchants who can invoice customers and receive payment by card. Fees range from 1.99 per cent plus Dh1 per transaction depending on payment method and location, such as online or via UAE mobile.
• Tap started in May 2013 in Kuwait, allowing Middle East businesses to bill, accept, receive and make payments online “easier, faster and smoother” via goSell and goCollect. It supports more than 10,000 merchants. Monthly fees range from US$65-100, plus card charges of 2.75-3.75 per cent and Dh1.2 per sale.
• 2checkout’s “all-in-one payment gateway and merchant account” accepts payments in 200-plus markets for 2.4-3.9 per cent, plus a Dh1.2-Dh1.8 currency conversion charge. The US provider processes online shop and mobile transactions and has 17,000-plus active digital commerce users.
• PayPal is probably the best-known online goods payment method - usually used for eBay purchases - but can be used to receive funds, providing everyone’s signed up. Costs from 2.9 per cent plus Dh1.2 per transaction.
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- Technology expert in robotics and automation: Dh20,000 to Dh40,000
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
