By Mark Steffe, President/CEO of First Command
A recent report found that a majority of Americans (56 percent) are living paycheck to paycheck, indicating a clear struggle with financial literacy that the pandemic has amplified. Challenges related to financial literacy, which is defined as having skills and knowledge to make informed decisions about monetary matters, can result in destructive money behaviors including poor saving and spending, overuse of credit cards and bad investment choices. The implications of financial literacy/readiness cut to the heart of many important life decisions, including education, divorce, safety and mental health. Greater financial literacy education is needed for the general population, but one group that is particularly susceptible to the pitfalls of a lack of financial literacy is our Nation’s military service members and their families. Now is the time to take swift action to address the financial readiness challenges among military families to help them plan for a solid financial future.
Financial readiness among career military families dropped significantly in the past year. Recent research from First Command revealed that middle-class military families earned an average grade of 57 on an annual financial readiness test. That’s the lowest score in the history of the test and a drop down from the average score of 71 last year. In contrast, general population test takers with similar household incomes earned an average grade of 69, which is statistically unchanged from 2020. The military/general population gap is particularly noteworthy in their lack of financial literacy as military test takers are significantly more likely than their civilian counterparts to say they’ve completed a financial literacy or education program (56 percent versus 31 percent). Unfortunately, the benefits of these programs are not fully reflected in test scores.
The reasons for the dramatic slip in financial readiness among military families often are attributable to the unique circumstances that military service members face that their civilian counterparts do not. In many cases these circumstances have a “snowball effect.” For example, the primary focus of military members is to protect our freedoms, and that work includes Permanent Change of Station (PCS) orders, which the military community knows includes relocating their families approximately every two to four years. Frequent relocations carry many challenges (moving logistics, housing, re-establishing social connections, etc.)—not the least of which is that military spouses often struggle to secure meaningful employment during frequent relocations. Many do not have access to jobs in their chosen career, near the location where their spouse is serving. While some civilians also experience the stress of multiple moves, the regularity of military members’ moves, combined with their duty to serve, its associated risks and the difficulty for spouses to secure employment, is more consistent and can be disruptive to finances. For military members, the pressure of having sound finances is particularly important to the upward mobility of their career. Financial problems for military members can compound because if they carry unreasonable debt, that is reflected in their security clearance, which is needed to hold or pursue other military jobs and promotions. Most civilians do not have the same direct link from their financial history to their career advancement.
Like any big challenge, improving financial readiness needs to begin somewhere. Taking three critical steps now can help those who serve and protect our country avoid financial pitfalls.
1. Introduce financial literacy to all U.S. high school students.
Recently the financial literacy bell has begun to sound, with six states currently requiring high school students to take a dedicated finance class before they graduate and 25 more states introducing new legislation that would add personal finance education to the curriculum. In order to level the playing field, we need all 50 states to require a financial literacy curriculum that teaches young people basic principles of money management. For all students—including those who decide to join the U.S. Military—having foundational personal finance knowledge will give them an informed perspective to create a healthier financial future.
Financial literacy curriculum should include introductory elements that students can put into practice immediately. Students should learn how to develop a realistic budget and hold themselves accountable to a spending and savings plan. They also need to understand the power of interest rates and when it’s smart to have debt, how much debt to assume, and when to avoid it at all costs. Teaching high school students the fundamental principles of personal finance will give them a solid understanding of money matters as they gain more independence and begin to make more of their own financial decisions.
2. Don’t forget the role of military spouses.
Military spouses play a hugely important role in military families and face a unique set of challenges. They often manage and help the family adjust during PCS moves, maintain or search for their own job, and handle unexpected emergencies—all while managing their family’s personal finances while their military spouse is on active duty.
With this in mind, military spouses need to be included in the same financial readiness training as military members, which often includes how to manage money, create savings goals, invest, learn strategies for eliminating debt, and plan for retirement. When all members of the household who have access to and make decisions about finances have a solid understanding of sound financial behaviors, the outcomes likely will be more favorable.
3. Encourage military branches to advocate for the outsourcing of financial coaching resources to military families.
Many civilians enlist the help of financial planning coaches to guide them on a path to a sound financial future. Military families should be afforded a similar option, through their work with the U.S. Armed Forces. Creating a public/private partnership where the U.S. government outsources financial planning coaching to experts will improve the financial readiness of service members and military spouses. Specialized one-on-one coaching helps families bridge the gap in their own financial knowledge so they feel more confident while pursuing long-term financial security. Research has revealed that 62 percent of military families who work with financial advisors report having three months or more of savings to fall back on to cover household monthly expenses. That compares to 53 percent of military families without an advisor. Professional financial coaching can make a tremendous difference to put military families on the path toward achieving lifelong financial stability. The public/private partnership for financial coaching will advance the betterment of the military and their families.
We know how important financial readiness is to maintaining a healthy budget and overall happy life. Now is the time to take some small steps that will have a big effect on the financial lives of military families—those who serve and protect our country.
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About the First Command Financial Behaviors Index®
Compiled by Sentient Decision Science, Inc., the First Command Financial Behaviors Index® assesses trends among the American public’s financial behaviors, attitudes and intentions through a monthly survey of approximately 530 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly. The margin of error is +/- 4.3 percent with a 95 percent level of confidence. www.firstcommand.com/research
About Sentient Decision Science, Inc.
Sentient Decision Science was commissioned by First Command to compile the Financial Behaviors Index®. SDS is a behavioral science and consumer psychology consulting firm with special vertical expertise within the financial services industry. SDS specializes in advanced research methods and statistical analysis of behavioral and attitudinal data.