‘Themes of Action’ Inspired by the 1st Arab Household Savings Conference

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Over-reliance on governments and increasing longevity make fiscal systems unsustainable

An ideal savings vehicle in MENA would be a ‘government-endorsed savings engine’ with fiscal incentives

The 1st Arab Household Savings Conference was held last week in Manama, the capital of Bahrain. The event, well attended by global, regional and local industry specialists, produced a strong image of a way forward for actions and reforms needed to build household savings and financial literacy in the region. It began with some idea of the socio-economic challenges and fiscal policies prevailing in the region, gradually zooming into the scope and nature of those challenges and underlying trends, and finally we heard strong messages about what can be done, and what needs to happen.

Since we are still living Covid-19 and its catastrophic effects on millions of families around the world losing incomes and financial security, I thought this could be a good time to share key messages from the conference and inspire the region’s policy-makers and the financial industry with these ‘themes for action’.

Session One - Day 1

What’s the socio-economic imperative for household savings? What’s its economic power?

• Household savings are a significant part of national savings that reinforce both national financial security and spur investments, jobs and growth.
• Pandemic has reminded us of the importance of building financial resilience. The challenges of low Financial Literacy and Inclusion are very relevant in the MENA region, and governments ultimately take responsibility for this.
• This cultural conditioning, of relying primarily on governments for financial security, has made the region unable to plan for the long term, meanwhile, people are living longer and retiring earlier. Change in life cycles and increasing longevity make fiscal systems unsustainable, requiring re-assessment and alternative systems.

Session Two - Day 1

To turn MENA into savings economies: what culture and which products do we need to build?

• The issue in MENA region is a disproportionate allocation of wealth, and an aggressive spending culture. Financial literacy is low, so the young are living for today and not saving for the future. Many take loans that they don’t need, just to keep up a lifestyle that is beyond their means, and so we cannot wait for the culture to change organically.
• Maintaining this standard of living into retirement is unsustainable, and the government pension is not able to match these expectations. The choices you are left with is deferring retirement, relying on family or surviving off of the state pension. Private pensions, general savings, and health insurance need to be encouraged as a diverse portfolio for a secure future
• To incentivise savings, it would be instrumental to customize products for customer’s life-cycle, gender, income, risk profile and labour market needs, with personal objectives for saving.  Current products are primarily exclusive and few, often raffle deposits, or products with high fees, expenses and entry costs.

Session Three - Day 1

Why so much interest in financial literacy lately? What difference will it make?

• The Global Financial Literacy Excellence Centre “GFLEC” of the George Washington University, a leading global research centre on financial literacy, uses the ABCs of personal finance to identify financial literacy, testing numeracy, interest compounding, inflation, and risk diversification. More than 150,000 asked globally resulted in an average of only 33% who can answer 3 out of 4 questions (40% in Bahrain). The P-Fin Index is a comprehensive survey which yielded an average of around 50% literacy in the US over the last 5 years, with a high of 52% in 2020, still a failing grade.
• Studies show those with a college education, higher income, and employed or retired have a higher financial literacy. Those with more financial literacy were the least financially vulnerable, less constrained by their debt and debt payments and more likely to save and plan for their financial future.
• There is a need to build personalized programs to improve financial literacy, focusing on the most vulnerable demographics, to develop their knowledge in school, workplace programs and communities as a whole. These should include strategies for Financial Literacy and Inclusion.

Session One - Day 2

Where can households save? What's the ideal vehicle?

• The pandemic has caused a shift in needs and attitudes and raised awareness for financial security. It has also motivated a few institutions to innovate and offer a variety of saving solutions for clients and employees.
• The best savings products are those that are simple-to-understand, offer diversification and liquidity, and help the majority to start saving. Mobility or portability of the savings vehicle between providers would also be a great advantage.
• An ideal savings vehicle in MENA region would be a ‘government-endorsed savings engine’ with fiscal incentives, distributed nationally through qualified financial institutions, offering a vehicle for saving regardless of demographic, form of employment or personal wealth.

Session Two - Day 2

Will Fintech change the way people save? Will people make the shift to Fintech?

• Emerging technologies and new tech-savvy generations have led to the expansion of Fintech into the forefront of financial services. It offers better banking experiences, enabling a younger audience to engage more with their savings and develop their financial independence.
• Small Fintech companies are able to provide a suite of accessible, cost-effective and personalised services that a large bank would otherwise require a great deal of time and money to develop. Hence, they can play a pivotal role in rolling out and accelerating household savings.
• Within the Fintech space, institutions such as Robo Advisers and Open-banking platforms have a chance to collaborate to create a wider, richer and more efficient ecosystem of personal finance, household savings and wealth management, through account aggregation, sharing and monitoring.