Raising financial awareness among Saudi youth

A ground-breaking study in 28 countries by Visa International Literacy Barometer in 2012 found that Saudis scored below average when it came to financial literacy and money saving.
Perhaps not surprisingly that The National Bond GCC Savings Index found in a recent research that a worrying 92 percent of Saudis believed that their savings were not adequate for their future and a whopping 74 percent did not save regularly.
Further, a recent report released by the Saudi Arabian Monetary Agency — SAMA— showed that Saudi consumers had SR333.7 billion in loans to repay at the end of first quarter 2014 — a 35 percent increase from the same period just two years prior. The same report also showed that credit card loans totaled SR8.9 billion up from SR7.7 billion at same period in 2012.
Additionally, a close examination of the data indicates that while some loans were taken to purchase big ticket items such as cars and real estate furnishing, the majority of consumer debt were used to buy small ticket consumer good denoted as ‘other’.
Having the lion share of consumer debt used to purchase consumer goods instead of funding viable and wealth-generating commercial investments is not good for consumers in the long-term and in fact it could be unhealthy for the economy as it does not generally lead to economic growth.
While there is some truth to the notion the Saudi middle class has grown and so should total consumer debt, the rapid rate with which consumer debt has increased is a cause for alarm.
To illustrate, Wamda Research Lab reported last year that at $25,000, the average annual per capita income in Saudi Arabia was almost half that of the US at around $46,000.
Yet, taking the lower cost of living in Saudi into account, the debt-to-income ratio in Saudi Arabia is almost twice that of the US.
In other words, as debt-crazed as Americans are, Saudis tend to ring up higher debts as a ratio of their income.

Encouraging the habit of saving:
To stitch the need for and habit of saving in the fabric of the society requires a comprehensive and coordinated ‘regulation and education’ plan at the national level.
Regulations that limit excessive lending by banks and education that lets consumers be mindful of the need for and benefits of saving.
To that end, SAMA has been very active in pushing regulations to limit consumer excessive lending.
Regulations such as limiting banks’ loan-to-deposit ratios, curbing lending to those whose total loans exceed a certain percentage of their total salary as well as the establishment of Saudi Credit Bureau — SIMAH — all have gone a long way in reducing misplaced consumer lending nationwide.

Early education is the key:
While effective regulations are important, education is both the best preventative measure against excessive lending and the best motivator to encourage long-term savings among consumers.
Hence, the Capital Market Authority has made great strides in making investment education readily available to everyone online at cma.org.sa.
This is a great resource for people to start educating themselves on investments, savings and retirement planning.
Internationally, other global institutions have contributed to such a cause by setting up financial literacy programs aimed at preventing high levels of debt among youth.
One such a company is Visa International which has introduced ‘My Money Skills’, an online financial literacy portal aimed at educating school students and young graduates the money basics such as budgeting, saving, and bank account and credit card management.
This great portal is in multiple languages including Arabic and it can be found at www.ehsib.com.
However, to truly build a saving-minded society generation after generation, we must start the education process much earlier. Because financial literacy is a core life skill in increasingly complex societies, we must give our children the necessary financial education to give them ahead start in life. Being money-smart is no longer a perk but rather a necessity in today’s commercially active economies.
The Organization for Economic Co-operation and Development or OECD — whose mandate is to promote policies that improve the economic and social well-being of people around the world — has recommended that financial education start as early as possible and be taught in schools as part of their curriculums.
OECD went further and declared that “financial education is a long process and building it into school curriculum from an early age allows children to acquire the knowledge and skills to build responsible financial behavior throughout their lives”.
Thus, the aim of such policies is to equip children with financial literacy today to prevent them from taking on high levels of debt as adults tomorrow.
Interestingly, countries such as the US, Brazil and a few others are looking at incorporating financial education into their school curriculums nationwide.
In fact, England has already embedded financial education into its national school curriculum just last year.
The objective as one official put it “to give schools the chance to equip young people with the knowledge and skills they need to manage their money now and into the future.”
So the question becomes does this work? Well, the Federal Reserve Bank of New York — a non-profit that works with public and private sector institutions to foster the safety, soundness and vitality of economic and financial systems in the US — conducted and published a study in July of this year with the objective of determining whether or not there was evidence of a relationship between financial education and youth’s subsequent debt behavior.
The result was as stated in their website that “…financial education programs do have significant impacts on the financial decision making of youth…”.
The study also declared that financial literacy education decreased adverse outcomes such as bankruptcies and likelihood of youth carrying substantial debt in the future.

Final thought
It is time that we take a hard look at this very important priority.
Early and ongoing financial education has been proven to help young people improve their money and saving skills and their future as a result.
Realizing the benefits, forward-looking countries are incorporating financial education into their school curriculums, and it is time for us to be proactive in instilling responsible financial behavior in our youth generation after generation.

— Khaled Ali Almushare has 16 years’ experience in the financial industry in the US and Saudi Arabia. He is also a member of Effat University’s Program Advisory Committee. He has a Master of Business Administration in Finance and Investments.