UAE Consumers Warned: Beware Of New Year Debt

As New Year’s Eve revellers across the UAE prepare to ring in 2017, analysts have warned against spending with credit or debit cards.

Residents who prefer to swipe their plastic money tend to spend more than those who use physical bills and coins, hence those who don’t leave their payment cards while they're out celebrating or shopping could be in store for a “nasty New Year shock,” according to a research from a London Business School professor.

Niro Sivanathan, associate professor of organisational behaviour, suggested that using cash instead could keep festive spending under control.

“Parting with cash is psychologically painful. Consumers are therefore less likely to spend as much when cash is the only payment option available,” Sivanathan said. “Pay with credit decouples the pleasure of consumption from the pain of paying.”

The UAE is not just one of the most popular destinations for New Year’s Eve revellers, it is also the world’s most expensive place to celebrate the special occasion. A night of party at a restaurant in Dubai, for example, can easily set a partygoer back Dh2,240, much higher than what one would spend in New York, London, Paris or Amsterdam, according to Travelex research.

Although shoppers in the region used to be quite less receptive to cashless transactions, the latest research showed that more and more people in the UAE are now embracing the convenience of contactless payments.

Data released by PwC indicated that the pace of take-up of online shopping alone is now accelerating, with the percentage of people buying on the internet on a daily basis doubling from six per cent in 2014 to 12 per cent in 2015. The number is now higher than the global average, though the percentage of weekly and monthly shoppers still lags behind.

Consumers in the region shop for different items online, with clothing and footwear, as well as electronics, computers, books and music being highly in demand.

In a separate study by Morgan Stanley Research, it was found that more than a third (34 per cent) of online shoppers are expected to purchase groceries online this year.

Sivanathan warned that cashless transactions are a “powerful anaesthetic” as they shield the consumer from the “psychological pain” that comes with spending money. And the more detached the consumer is, the more likely the spending goes up.

“Paying with credit decouples the pleasure of consumption from the pain of paying. Paying with contactless payment further reduces the friction and anaesthetises the psychological pain that accompanies payment, seducing us into splashing out even more on those pricey purchases.”

“The more consumers can decouple the pleasure of consumption from the psychological pain of expenditure, the bigger the risk of a holiday season financial debt,” warned Sivanathan.

The study also found some “worrying implications” for some shoppers, as buying luxury goods on credit is especially attractive to those who have low self-esteem.

“These individuals seek to boost their self-esteem by purchasing high-status goods to make them feel better about themselves. The combined effect of low self-esteem, high status goods and the ability to purchase on credit creates a perfect storm. This can be dangerous. Consumers with low self-esteem are at higher risk of falling into debt.”

 source : gulfnews