Beyond Oil: Saudi Rulers Look to Financial Education to Broaden Their Economy

By Dan Kadlec

May 16, 2018

Financial literacy is a pillar of economic diversification

As Saudi Arabia embarks on ambitious plans to modernize its economy, financial education has emerged as a top priority. Last week, the Saudi Council of Economic and Development Affairs approved a sweeping plan that names individual financial literacy as one of three pillars of the reform movement.

The oil-rich Kingdom has been slow to embrace a system with advanced capital markets and a vibrant private sector. Building those is now top of mind. But so is “promoting and empowering financial planning” among individuals. These are the three pillars of the nation’s Financial Sector Development Program 2020, which is part of a broader “Vision 2030” to diversify the economy.

The Saudi people have long lived off their country’s vast oil wealth, which has shielded many citizens from any pressing need to understand things like entrepreneurship and modern financial products including insurance and mortgages. The Kingdom is counting on financial education efforts to stimulate saving, investment, home ownership, and estate and retirement planning.

Oil accounts for 80% of the nation’s income and underpins a generous welfare system. Saudi nationals are mostly occupied in oil-related fields and the public sector. They hold only 19% of jobs in the private sector, where foreign labor dominates.

This model, where the Saudi state dictates pretty much all economic activity, began to crack during the 2015 collapse in oil prices. There has been only a modest rebound since then, and energy alternatives and cheaper extraction technologies threaten to keep oil prices depressed for years. Such developments have thrown a scare into the rulers’ palaces.

That spurred a wholesale rethinking of the Saudi economy in 2016, when officials crafted Vision 2030. They hope to emulate the economic diversification achieved in other energy-rich nations like Mexico, Malaysia and Indonesia.

To do that, officials believe individuals must…

• • •

be more financially capable. Only then will they understand how to better use loans and start-up funding that the financial sector is under pressure to make more accessible. This would help build the nation’s capital markets and fuel entrepreneurship beyond the oil sector. It would also help individuals become better stewards of their wealth and prepare for their long-term financial security.

Oil wealth has been and undeniable blessing. Yet financial dependence on anyone or anything is generally associated with financial illiteracy. There is little incentive to save, budget or invest—and even less incentive to create new businesses—when the oil money keeps rolling in. Only about half of Saudis even know what a credit report is, or that they have one on file at the Saudi Credit Bureau.

The Saudi program will reach individuals in schools and universities through curriculum changes and mandates. It will also draw on mass marketing through TV, radio, newspapers and magazines. Specific marketing strategies will target youth, women, small business owners, low-income individuals, retirees, military personnel and office workers.

This promises to be a sweeping effort. Giving financial education such a lofty place in the program is a ringing testament to faith in the broad economic benefits of a more financially capable population.