By Jorge Camarate and Fadi Adra

IN 2018, 45% of Saudi citizens had no savings and more than 80% had no investment plans, according to a survey conducted by the Riyali Financial Literacy Program and Souqalmal.com. Meanwhile, Saudis are borrowing at very high rates. Saudi banks have outstanding consumer loans worth nearly $100 billion, excluding lending for education, healthcare, and housing.

Such behavior is not surprising given that Saudi Arabia provides pension and social benefits that are generous even by GCC standards. The result is insufficient personal savings. As part of a move to a more balanced economy, in which state provision is more targeted and resource management is more efficient, Saudi Vision 2030 has set a goal of increasing savings from 6% to 10% of total household income.

More savings will have broad effects. Individuals will have greater income security over the long-term. People will also have more control over their finances for major decisions such as buying a house and retirement. Society will benefit from a more sustainable social welfare model. There will also be additional capital for economic investment, with more vigorous asset management and more developed capital markets. In the future, the public and private sectors could work together to encourage demand for saving solutions and increase the supply of saving products and advice.

In particular, the government needs to create more demand for savings. One method is to revise the pension system so that it helps those who need it the most, and to communicate this change as a form of social solidarity. Such an alteration to the pension system would encourage the rest of the population to save more. Other demand strategies include raising financial awareness among workers and offering financial education for those still in school. Working with the younger generation, such as by using approaches that mimic consumer selling techniques, is particularly important if Saudi Arabia is to foster a cultural change toward savings.

On the supply side, there is a fairly limited array of investment products and incentives for workers. The private sector should develop simpler, easier to understand products designed to help customers reach personal financial goals. Private firms could also offer low-cost tools, such as robo-advisors, and they could make a special effort to reach underserved segments of the working population, such as expatriates and the self-employed. Even if much of the expatriate population’s savings eventually leave the country, in the meantime these funds will go into Saudi Arabia’s asset management and capital markets sectors.

For its part, the government could offer fiscal incentives for people to save, perhaps even a government-matching program. For example, the U.K. government created a one-to-one matching program for long-term education saving accounts for children that are not accessible until the child reaches the age of 18. Another tactic that has encouraged savings elsewhere is to have pension plans automatically enroll employees to contribute. Employees can opt-out of the system, but they must request to do so. The result is that opt-out rates have been modest—generally under 10% in the U.K.

Another action the government can take, which will influence both demand and supply, is to ensure the correct regulatory framework is in place to support Saudi Arabia’s asset management and capital markets sector. This framework must accomplish two main goals: promote healthy competition among institutions to develop and offer the best products and solutions to customers; and instill confidence in the public to use these new saving and investment products. That means taking concrete actions to protect consumer interests, such as harmonizing product features, capping costs, and mandating disclosure requirements.

Altering people’s deeply ingrained spending and savings habits is a gradual process. Nonetheless, change is necessary for the long-term economic prospects of Saudi Arabia. With the right mixture of demand and supply policies, a focus on changing the attitudes of the young, and pension reform, the country can move away from its current low savings habits toward a future with more savings, deeper capital markets, and a sustainable pension system.

* The writers are Partners with Strategy& Middle East, part of the PwC network