JEDDAH/RIYADH: As Saudi Arabia deals with the coronavirus disease (COVID-19) pandemic, concern about the economy is rising.
Although many have hunkered down and organized some aspects of their lives, it is still tough to predict how things will pan out. People must, therefore, prepare for the unexpected to ensure they are in the best possible financial position to weather the storm.
As part of measures to address the impact of the COVID-19 crisis in the Kingdom, Finance Minister Mohammed Al-Jadaan announced that the “cost of living allowance will be suspended as of June 1 and VAT will be increased to 15 percent from 5 percent as of July 1.”
Is Saudi society prepared for this? And what steps do people need to take to adjust to the new norm?
“As a society, we have a weak understanding of the concept of long-term planning and we are rash decision-makers that base these decisions on current situations and circumstances,” said Dr. Ibrahim Al-Zibin, a professor of sociology at Imam Mohammed bin Saud Islamic University in Riyadh.
People are constantly faced with financial challenges, he added, but to ensure financial stability they must change their attitudes toward spending, which requires the development of good financial habits.
“Nothing is everlasting; situations change and they can either be positive or negative,” he said. “Circumstances force that change and in all cases, we have to be prepared for the worst.
The period of home quarantine is an incentive for families to adopt a policy of reducing expenses and focusing on savings.
Dr. Majed Abdullah Al-Hedayan, Financial analyst
“If you are an employee with a stable income but are financially unstable, this is a result of your own actions and not caused by decisions made by the relevant authorities. These are necessary regulatory decisions that must be accepted and it’s up to the individual to deal with the reality of the situation.”
Al-Zibin said that Saudis tend not to be fully prepared, nor do they comprehend the magnitude of a situation until they are hit with a crisis.
“There’s a gap between the perception and reality, and this is the reality of the situation, whether we like it or not,” he added. “It’s up to us, as a society, to be more responsible, more rational and less emotional.
“To have a clear understanding of the situation, we have to be honest with ourselves. We must strategize, reprioritize and financially manage our lives by understanding that a paycheck is not fixed. We have to live within our means to eliminate and avoid debt, control impulse spending, and make savings instinctive by arranging for an emergency fund.”
Credit cards, loans, savings and even emergency funds allow people to buy more things that their income would not normally allow.
Al-Zibin recommends that financial decisions be made as a family and not by each individual within it. He stressed that children must be involved in the process because it is important that they understand the spending limitations of their parents and develop good habits for a better future.
He also urged families to be transparent about spending, evaluate expenses and live frugally. The pandemic, the subsequent lockdown and now the VAT increase and suspension of the cost of living allowance have led to panic buying, a type of behavior that Al-Zibin said is understandable but unhelpful.
“Panic buying is one of the wrong methods of spending,” he said. “It is fed by emotions instead of rational thinking and, as a society, we react to situations irrationally at times.
“We are currently facing a crisis but it’s not one (that) should cause panic and fear. With all the decisions made so far, it’s wise to stay calm. We’ll surely see a surge in panic spending in the next two to three weeks as a way of preparing for the worst, thinking that this will be the easy way out.”
Dr. Majed Abdullah Al-Hedayan, a senior legal consultant and financial analyst in Riyadh, agreed that in light of the economic decisions already announced by the Saudi government, “and maybe some further strict measures to come,” individuals and families should review their finances and change priorities to limit spending and focus on saving.
We have to live within our means to eliminate and avoid debt, control impulse spending, make savings instinctive by arranging for an emergency fund.
Dr. Ibrahim Al-Zibin, Sociologist
“This will enable families to cope with the requirements of daily living, based on obtaining only what they need and not what they want,” said Al-Hedayan, who highlighted the importance of preparing a budget based on available finances.
“The period of home quarantine is an incentive for families to adopt a policy of reducing expenses and focusing on savings, based on fundamental needs rather than luxuries.”