Military Personnel
DOD Has Taken Steps to Address Servicemembers' Financial Needs, but Additional Effort Is Warranted Gao ID: GAO-06-749T May 18, 2006The finances of servicemembers and their families have been an ongoing concern of Congress and the Department of Defense (DOD), especially in light of more frequent deployments to support conflicts in Iraq and Afghanistan. Adverse effects that may result when servicemembers experience financial problems include loss of security clearances, criminal or nonjudicial sanctions, adverse personnel actions, or adverse impacts on unit readiness. To decrease the likelihood that servicemembers will experience financial problems, DOD has requested and Congress has granted annual increases in military basic pay for all active duty servicemembers and increases in special pays and allowances for deployed servicemembers. The military has also developed personal financial management (PFM) programs to help avoid or mitigate adverse effects associated with personal financial problems. However, studies published in 2002 showed that servicemembers continue to report financial problems. This testimony provides a summary of GAO's prior work examining (1) the extent to which deployments have affected the financial conditions of active duty servicemembers and their families, and (2) steps that DOD has taken to assist servicemembers with their financial needs.
DOD data suggests that deployment status does not affect the financial condition of active duty servicemembers, although some deployed servicemembers faced certain problems. Data from a 2003 DOD-wide survey suggests that servicemembers who were deployed for at least 30 days reported similar levels of financial health or problems as those who had not deployed. For example, of junior enlisted personnel, 3 percent of the deployed group and 2 percent of the nondeployed group indicated that they were in "over their heads" financially; and 13 percent of the deployed group and 15 percent of the nondeployed group responded that they found it "tough to make ends meet but keeping your head above water" financially. However, problems receiving family separation allowance and communicating with creditors may result in financial difficulties for some deployed servicemembers. Based on DOD pay data for January 2005, almost 6,000 of 71,000 deployed servicemembers who had dependents did not obtain their family separation allowance in a timely manner. Furthermore, problems communicating with creditors--caused by limited Internet access, few telephones and high fees, and delays in receiving ground mail--can affect deployed servicemembers' abilities to resolve financial issues. Additionally, some financial products marketed to servicemembers may negatively affect their financial condition. DOD has taken a number of steps to assist servicemembers with their financial needs, although some of this assistance has been underutilized. These steps include PFM training for servicemembers, which is required by all four military services. DOD also provides free legal assistance on purchase contracts for large items and other financial documents. However, according to the attorneys and other personnel, servicemembers do not make full use of available legal services because they may not take the time to visit the attorney's office or they fear information about a financial problem would get back to the command and limit their career progression. In addition, each service has a relief or aid society designed to provide financial assistance through counseling and education as well as financial relief through grants or no-interest loans. Some servicemembers in our focus groups stated that they would not use relief from a service society because they take too long, are intrusive, require too much in-depth financial information, or may be career limiting if the command found out. Servicemembers may use non-DOD resources if they do not want the command to be aware of their financial conditions or they need products or support not offered through DOD, the services, or the installation. Although DOD has taken these steps to assist servicemembers with their financial needs, it does not have the results-oriented departmentwide data needed to assess the effectiveness of its PFM programs and provide necessary oversight. Without an oversight framework requiring evaluation and a reporting relationship between DOD and the services, DOD and Congress do not have the visibility or oversight needed to assess the effectiveness of DOD's financial management training and assistance to servicemembers.
GAO-06-749T, Military Personnel: DOD Has Taken Steps to Address Servicemembers' Financial Needs, but Additional Effort Is Warranted
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United States Government Accountability Office:
GAO:
Testimony:
Before the Subcommittee on Oversight and Investigations, Committee on
Financial Services, House of Representatives:
Military Personnel:
DOD Has Taken Steps to Address Servicemembers' Financial Needs, but
Additional Effort Is Warranted:
Statement of Valerie C. Melvin:
Acting Director:
Defense Capabilities and Management:
GAO-06-749T:
GAO Highlights:
Highlights of GAO-06-749T, a testimony before the Subcommittee on
Oversight and Investigations, Committee on Financial Services, House of
Representatives.
Why GAO Did This Study:
The finances of servicemembers and their families have been an ongoing
concern of Congress and the Department of Defense (DOD), especially in
light of more frequent deployments to support conflicts in Iraq and
Afghanistan. Adverse effects that may result when servicemembers
experience financial problems include loss of security clearances,
criminal or nonjudicial sanctions, adverse personnel actions, or
adverse impacts on unit readiness. To decrease the likelihood that
servicemembers will experience financial problems, DOD has requested
and Congress has granted annual increases in military basic pay for all
active duty servicemembers and increases in special pays and allowances
for deployed servicemembers. The military has also developed personal
financial management (PFM) programs to help avoid or mitigate adverse
effects associated with personal financial problems. However, studies
published in 2002 showed that servicemembers continue to report
financial problems.
This testimony provides a summary of GAO‘s prior work examining
(1) the extent to which deployments have affected the financial
conditions of active duty servicemembers and their families, and (2)
steps that DOD has taken to assist servicemembers with their financial
needs.
What GAO Found:
DOD data suggests that deployment status does not affect the financial
condition of active duty servicemembers, although some deployed
servicemembers faced certain problems. Data from a 2003 DOD-wide survey
suggests that servicemembers who were deployed for at least 30 days
reported similar levels of financial health or problems as those who
had not deployed. For example, of junior enlisted personnel, 3 percent
of the deployed group and 2 percent of the nondeployed group indicated
that they were in ’over their heads“ financially; and 13 percent of the
deployed group and 15 percent of the nondeployed group responded that
they found it ’tough to make ends meet but keeping your head above
water“ financially. However, problems receiving family separation
allowance and communicating with creditors may result in financial
difficulties for some deployed servicemembers. Based on DOD pay data
for January 2005, almost 6,000 of 71,000 deployed servicemembers who
had dependents did not obtain their family separation allowance in a
timely manner. Furthermore, problems communicating with
creditors”caused by limited Internet access, few telephones and high
fees, and delays in receiving ground mail”can affect deployed
servicemembers‘ abilities to resolve financial issues. Additionally,
some financial products marketed to servicemembers may negatively
affect their financial condition.
DOD has taken a number of steps to assist servicemembers with their
financial needs, although some of this assistance has been
underutilized. These steps include PFM training for servicemembers,
which is required by all four military services. DOD also provides free
legal assistance on purchase contracts for large items and other
financial documents. However, according to the attorneys and other
personnel, servicemembers do not make full use of available legal
services because they may not take the time to visit the attorney‘s
office or they fear information about a financial problem would get
back to the command and limit their career progression. In addition,
each service has a relief or aid society designed to provide financial
assistance through counseling and education as well as financial relief
through grants or no-interest loans. Some servicemembers in our focus
groups stated that they would not use relief from a service society
because they take too long, are intrusive, require too much in-depth
financial information, or may be career limiting if the command found
out. Servicemembers may use non-DOD resources if they do not want the
command to be aware of their financial conditions or they need products
or support not offered through DOD, the services, or the installation.
Although DOD has taken these steps to assist servicemembers with their
financial needs, it does not have the results-oriented departmentwide
data needed to assess the effectiveness of its PFM programs and provide
necessary oversight. Without an oversight framework requiring
evaluation and a reporting relationship between DOD and the services,
DOD and Congress do not have the visibility or oversight needed to
assess the effectiveness of DOD‘s financial management training and
assistance to servicemembers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-749T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Valerie C. Melvin at
(202) 512-6304 or MelvinV@gao.gov.
[End of section]
Madam Chairwoman and Members of the Subcommittee:
I am pleased to be here today to discuss the financial service needs of
military personnel and their families. The finances of servicemembers
and their families have been an ongoing concern of Congress and the
Department of Defense (DOD), especially in light of more frequent
deployments to support the war on terrorism and conflicts in Iraq and
Afghanistan. DOD's Social Compact, which is part of its human capital
strategic plan, notes that mission readiness and quality of life depend
on whether servicemembers use their financial resources responsibly.
Some adverse effects that may result when servicemembers experience
serious financial problems include loss of security clearances,
criminal or nonjudicial sanctions, or adverse personnel actions
including possible discharge from the military. Servicemembers with
serious financial issues may also have an adverse impact on the
readiness of the unit. For example, servicemembers' financial problems
may take the servicemembers and possibly their unit commanders away
from their primary duties in order to address problems with creditors.
In a 2002 report to Congress, the Navy identified an estimated $250
million in productivity and salary losses due to servicemembers' poor
personal financial management.[Footnote 1]
Congress and DOD have taken steps to decrease the likelihood that
deployed and nondeployed servicemembers will experience financial
problems. DOD has requested and Congress has granted annual increases
in military basic pay for all active duty servicemembers and increases
in special pays and allowances for deployed servicemembers, such as the
family separation allowance and hostile fire/imminent danger pay. The
military also has developed personal financial management (PFM)
programs to provide servicemembers with financial literacy training,
financial counseling, and other assistance to avoid or mitigate the
adverse effects associated with personal financial problems."
Despite the added compensation and the assistance provided through the
PFM programs, studies in recent years by DOD and others show that
active duty servicemembers continue to report financial problems. For
example, a 2002 study[Footnote 2] noted that 20 percent of junior
enlisted servicemembers reported that they struggled to make ends meet
financially and another 4 percent regarded themselves as "in over their
heads" with respect to their finances.
In this context, my testimony today will summarize our prior work
examining (1) the extent to which deployments have affected the
financial conditions of active duty servicemembers and their families
and (2) steps that DOD has taken to assist servicemembers with their
financial needs.
My statement is based primarily on our work completed in April
2005[Footnote 3] and our institutional knowledge from prior reviews
examining financial issues of servicemembers and their families (see
GAO Related Products at the end of this testimony statement). Other
information, such as the current status of our recommendations to DOD
that were pending at the time when the reports were issued, will also
be discussed. We conducted our work in accordance with generally
accepted government auditing standards during May 2006.
Summary:
DOD-wide survey data suggest that deployment status does not affect
active duty servicemembers' financial conditions, although some
deployed servicemembers faced additional problems with receiving family
separation allowances and communicating with creditors and family. DOD
data based on servicemember responses to a 2003 DOD-wide survey suggest
that servicemembers who were deployed for at least 30 days reported
similar levels of financial health or problems as those who had not
deployed. For example, of the junior enlisted personnel, 3 percent of
the deployed group and 2 percent of the nondeployed group indicated
that they were in "over their heads" financially; and 13 percent of the
deployed group and 15 percent of the nondeployed group responded that
they found it "tough to make ends meet but keeping your head above
water" financially. These responses are consistent with the findings
that we obtained in a survey of all PFM program managers and in focus
groups conducted during our 13 site visits. However, problems receiving
family separation allowance promptly and communicating with creditors
and families may result in financial difficulties for some deployed
servicemembers. Based on DOD pay data for January 2005, almost 6,000 of
71,000 deployed servicemembers who have dependents did not obtain their
family separation allowance in a timely manner. The family separation
allowance of $250 per month is designed to compensate servicemembers
for extra expenses (e.g., childcare costs) that result when they are
involuntarily separated from their families. Not receiving this
compensation each month to help defray household costs can place a
financial strain on the family when the servicemembers are deployed.
Furthermore, problems communicating with creditors--caused by limited
Internet access, few telephones and high fees, and delays in receiving
ground mail--can affect deployed servicemembers' abilities to resolve
financial issues. Failure to avoid or promptly correct serious
financial problems can result in consequences for these servicemembers,
such as bad credit ratings or adverse effects on unit readiness and
morale. Additionally, some financial products marketed to
servicemembers may negatively affect their financial conditions.
DOD has taken a number of steps to assist servicemembers with their
financial needs; however, some of this assistance is underutilized. One
step is PFM training for servicemembers, which is required by all four
military services, although the extent to which the training is not
received is unknown because servicewide totals are not always
collected. DOD also provides legal assistance on purchase contracts for
large items and other financial documents. According to the attorneys
and other personnel, servicemembers do not make full use of available
legal services because they may not take the time to visit the
attorney's office or they fear information about their financial
problems would get back to the command and limit their career
progression. In addition, each service has a relief or aid society
designed to provide financial assistance through counseling and
education as well as financial relief through grants or no-interest
loans. Some servicemembers in our focus groups stated that they would
not use grants or no-interest loans from a society because they take
too long, are intrusive because the financial institution or relief/aid
society requires in-depth financial information in the loan or grant
application, or could be career limiting if the command found out the
servicemember was having financial problems. Servicemembers may choose
to use non-DOD resources if they do not want the command to be aware of
their financial conditions or they need products or support not offered
through DOD, the services, or the installation. Furthermore, DOD
established Armed Forces Disciplinary Control Boards that can make
recommendations to place businesses off-limits to servicemembers, which
can be an effective tool for avoiding or correcting unfair practices,
but data gathered during some of our site visits revealed few times
when boards were used to address predatory lending practices. Although
DOD has taken these many steps to assist servicemembers with their
financial needs, it does not have the results-oriented, departmentwide
data needed to assess the effectiveness of its PFM programs and provide
necessary oversight. Without an oversight framework requiring
evaluation and a reporting relationship between DOD and the services,
DOD and Congress do not have the visibility or oversight needed to
assess the effectiveness of DOD's financial management training and
assistance to servicemembers.
Background:
Because large numbers of Americans lack knowledge about basic personal
economics and financial planning, U.S. policymakers and others have
focused on financial literacy, i.e., the ability to make informed
judgments and to take effective actions regarding the current and
future use and management of money.[Footnote 4] While informed
consumers can choose appropriate financial investments, products, and
services, those who exercise poor money management and financial
decision making can lower their family's standard of living and
interfere with their crucial long-term goals.
One vehicle for promoting the financial literacy of Americans is the
congressionally created Financial Literacy and Education
Commission.[Footnote 5] Created in 2003, the Commission is charged with
(1) developing a national strategy to promote financial literacy and
education for all Americans; (2) coordinating financial education
efforts among federal agencies and among the federal, state, and local
governments; nonprofit organizations; and private enterprises; and (3)
identifying areas of overlap and duplication among federal financial
literacy activities.
Since at least the 1980s, the military services have offered PFM
programs to help servicemembers address their financial conditions.
Among other things, the PFM programs provide financial literacy
training to servicemembers, particularly to junior enlisted personnel
during their first months in the military. The group-provided financial
literacy training is supplemented with other types of financial
management assistance, often on a one-on-one basis. For example,
servicemembers might obtain one-on-one counseling from staff in their
unit or legal assistance attorneys at the installation.
In May 2003, the Office of the Under Secretary of Defense for Personnel
and Readiness, DOD's policy office for the PFM programs, established
its Financial Readiness Campaign, with objectives that include
increasing personal readiness by, among other things, (1) increasing
financial awareness and abilities and (2) increasing savings and
reducing dependence on credit. The campaign attempted to accomplish
these objectives largely by providing on-installation PFM program
providers with access to national-level programs, products, and support.
To minimize financial burdens on servicemembers, DOD has requested and
Congress has increased cash compensation for active duty military
personnel. For example, the average increases in military basic pay
exceeded the average increases in private-sector wages for each of the
5 years prior to when we issued our April 2005 report. Also, in April
2003, Congress increased the family separation allowance from $100 per
month to $250 per month and hostile fire/imminent danger pay from $150
per month to $225 per month for eligible deployed servicemembers. The
family separation allowance is designed to provide compensation to
servicemembers with dependents for the added expenses (e.g., extra
childcare costs, automobile maintenance, or home repairs) incurred
because of involuntary separations such as deployments in support of
contingency operations like Operation Iraqi Freedom. Hostile fire/
imminent danger pay provides special pay for "duty subject to hostile
fire or imminent danger" and is designed to compensate servicemembers
for physical danger. Iraq, Afghanistan, Kuwait, Saudi Arabia, and many
other nearby countries have been declared imminent danger zones. In
addition to these special pays, some or all income that active duty
servicemembers earn in a combat zone is tax free.[Footnote 6]
Financial Conditions Similar for Deployed and Nondeployed
Servicemembers, but Pay Administration and Communication Problems
Existed for Deployed Members:
Data from DOD suggest that the financial conditions for deployed and
nondeployed servicemembers and their families were similar. However,
deployed servicemembers faced problems with the administration of an
allowance as well as an inability to communicate with creditors.
Additionally, some financial products marketed to servicemembers may
negatively affect their financial condition.
Data Suggest Financial Conditions of Deployed Servicemembers and Their
Families Similar to Nondeployed Servicemembers and Their Families:
In a 2003 DOD-wide survey, servicemembers who were deployed for at
least 30 days reported similar levels of financial health or problems
as those who had not deployed. For example, an analysis of the
responses for only junior enlisted personnel showed that 3 percent of
the deployed group and 2 percent of the nondeployed group indicated
that they were in "over their heads" financially; and 13 percent of the
deployed group and 15 percent of the nondeployed group responded that
they found it "tough to make ends meet but keeping your head above
water" financially. Figure 1 shows estimates of financial conditions
for all servicemembers based on their responses to this
survey.[Footnote 7]
Figure 1: Self-Reported Financial Condition of Servicemembers Who Were
and Were Not Deployed for at Least 30 Days at the Time They Completed
the 2003 DOD Survey[A]:
[See PDF for image]
Source: GAO analysis of DOD data.
[A] Sampling errors of estimates for servicemembers who were not
deployed do not exceed +/-2 percentage points. Sampling errors of
estimates for servicemembers who were deployed do not exceed +/-5
percentage points. These sampling errors do not include errors due to
other sources, such as potential bias attributable to the overall 35
percent response rate. DOD conducted research to assess the impact of
this response rate on overall estimates. We have no reason to believe
that potential nonresponse bias not otherwise accounted for by DOD's
research is substantial for the variables we studied in this report.
[End of figure]
These responses are consistent with the findings that we obtained in a
survey of all PFM program managers and during our 13 site visits. In
the survey of PFM program managers, about 21 percent indicated that
they believed servicemembers are better off financially after a
deployment; about 54 percent indicated that the servicemembers are
about the same financially after a deployment; and about 25 percent
believed the servicemembers are worse off financially after a
deployment. Also, 90 percent of the 232 recently deployed
servicemembers surveyed in our focus groups said that their financial
situations either improved or remained about the same after a
deployment.
The 2003 DOD survey also asked servicemembers whether they had
experienced three types of negative financial events: pressure by
creditors, falling behind in paying bills, and bouncing two or more
checks. Again, the findings for deployed and nondeployed servicemembers
were similar. For example, 19 percent of the deployed group and 17
percent of the nondeployed group said they were pressured by creditors;
21 percent of the deployed group and 17 percent of the nondeployed
group said they fell behind in paying bills; and 16 percent of the
deployed group and 13 percent of the nondeployed group said they had
bounced two or more checks.[Footnote 8]
The special pays and allowances that some servicemembers receive when
deployed, particularly to dangerous locations, may be one reason for
the similar findings for the deployed and nondeployed groups.
Deployment-related special pays and allowances can increase
servicemembers' total cash compensation by hundreds of dollars per
month. Moreover, some or all income that servicemembers earn while
serving in a combat zone is tax free.
Deployed Servicemembers Faced Problems Receiving Family Separation
Allowance and Communicating with Creditors:
Deployed servicemembers experienced problems receiving their family's
separation allowance promptly and communicating with creditors and
families. Regarding family separation allowance, DOD pay data for
January 2005 showed that almost 6,000 of 71,000 deployed servicemembers
who have dependents did not receive their family separation allowance
in a timely manner. The family separation allowance of $250 per month
is designed to compensate servicemembers for extra expenses (e.g.,
childcare costs) that result when they are involuntarily separated from
their families. Delays in obtaining this allowance could cause undue
hardship for some families faced with such extra expenses. We
previously reported similar findings for the administration of family
separation allowance to Army Reserve soldiers and recommended that the
Secretary of the Army, in conjunction with the DOD Comptroller, clarify
and simplify procedures and forms for implementing the family
separation allowance entitlement policy.[Footnote 9]
The services had different, sometimes confusing, procedures that
servicemembers performed to obtain their family separation allowance.
DOD officials suggested other factors to explain why some eligible
servicemembers had not received their family separation allowance on a
monthly basis. These factors included servicemembers might not have
been aware of the benefit, they may not have filed the required
eligibility form, or errors or delays might have occurred when their
unit entered data into the pay system. In response to our
recommendation that DOD take steps to correct the delayed payment of
this allowance, DOD notified finance offices that they should emphasize
the prompt processing of such transactions so that payment for the
entitlement would begin within 30 days of deployment.
Servicemembers may also experience financial difficulties as a result
of communication constraints while deployed. For example, individuals
in the focus groups for our April 2005 report suggested that deployed
junior enlisted personnel sometimes had less access to the Internet
than did senior deployed personnel, making it difficult for the former
to keep up with their bills. In addition, some Army servicemembers told
us that they (1) could not call stateside toll-free numbers because the
numbers were inaccessible from overseas or (2) incurred substantial
costs--sometimes $1 per minute--to call stateside creditors.
Furthermore, in our March 2004 testimony,[Footnote 10] we documented
some of the problems associated with mail delivery to deployed troops.
Failure to avoid or promptly correct financial problems can result in
negative consequences for servicemembers. These include increased debt
for servicemembers, bad credit histories, and poor performance of their
duties when distracted by financial problems. In our April 2005 report,
we recommended and DOD partially concurred that DOD identify and
implement steps to allow deployed servicemembers better communications
with creditors. In their comments, DOD cited operational requirements
as a reason that communications with creditors may not be appropriate.
In addition, DOD noted that servicemembers should have extended absence
plans for their personal finances to ensure that their obligations are
covered.
Some Financial Products May Negatively Affect Servicemembers' Financial
Conditions:
Some financial products may also negatively affect servicemembers'
financial conditions. For example, although servicemembers already
receive substantial, low-cost government-sponsored life insurance, we
found that a small group of companies sold products that combine life
insurance with a savings fund.[Footnote 11] These products promised
high returns but included provisions that reduced the likelihood that
military purchasers would benefit. These products usually provided a
small amount of additional death benefits and had much higher premiums
than those for the government insurance. These products also had
provisions to use accumulated savings to pay the insurance premiums if
the servicemembers stopped making payments. Moreover, servicemembers
were being marketed a securities product, known as a mutual fund
contractual plan, which features higher up-front sales charges than
other mutual fund products and has largely disappeared from the
civilian marketplace. For both types of products, the servicemembers
who stopped making regular payments in the early years paid higher
sales charges and likely received lower returns than if they had
invested in other products.
Our November 2005 report made recommendations that included asking
Congress to consider banning contractual plans and direct regulators to
work cooperatively with DOD to develop appropriateness or suitability
standards for financial products sold to servicemembers. We also
recommended that regulators ensure that products being sold to
servicemembers meet existing insurance requirements and that DOD and
financial regulators take steps to improve information sharing between
them. In response to the concerns over the products being marketed to
servicemembers, securities and insurance regulators have begun
cooperating with DOD to expand financial literacy.
DOD Has Taken Steps to Assist Servicemembers with Financial Concerns,
but Some Assistance Is Underutilized:
DOD has taken a number of steps to assist servicemembers with their
financial concerns, including providing military-sponsored PFM
training, establishing a Financial Readiness Campaign, providing
command financial specialists, and using Armed Forces Disciplinary
Control Boards. Servicemembers can also access resources available
outside of DOD (see fig. 2). However, servicemembers and DOD are not
fully utilizing some of this assistance. In addition, DOD does not have
an oversight framework to assess the effectiveness of the steps taken
to assist servicemembers.
Figure 2: Financial Management Assistance and Training Available to
Servicemembers:
[See PDF for image]
Source: GAO analysis of DOD data; Image Art Explosion.
[End of figure]
Services Require Financial Management Training:
All four military services require PFM training for servicemembers, and
the timing and location of the training varies by service. The Army
begins this training at initial military, or basic, where soldiers
receive 2 hours of PFM training. The training continues at Advanced
Individual Training schools, where soldiers receive an additional 2
hours of training and at the soldiers' first duty station, where they
are to receive an additional 8 hours of PFM training. In contrast, Navy
personnel receive 16 hours of PFM training during Advanced Individual
Training; while, the Marine Corps and the Air Force begin training
servicemembers on financial issues at their first duty stations.
Events, such as deployments or permanent changes of station, can
trigger additional financial management training for servicemembers.
The length of this additional training and the topics covered can vary
by installation and command. Unit leadership also may refer a
servicemember for financial management training or counseling if the
command is aware of an individual's financial problems (e.g., abusing
check-cashing privileges).
Despite these policies, some servicemembers have not received the
required training, but the extent to which the training is not received
is unknown because servicewide totals are not always collected. The
Army, which is the only service that collected installation-level PFM
data, estimated that about 82 percent of its junior enlisted soldiers
completed PFM training in fiscal year 2003. Some senior Army officers
at visited installations acknowledged the need to provide PFM training
to junior enlisted servicemembers, but also noted that deployment
schedules limited the time available to prepare soldiers for their
warfighting mission (e.g., firing a weapon). While some services
reported taking steps to improve their monitoring of PFM training
completion--an important output--they still do not address the larger
issue of training outcomes, such as whether PFM training helps
servicemembers manage their finances better.[Footnote 12]
DOD's Financial Readiness Campaign Provides Resources Developed with
Assistance from External Organizations:
DOD's Financial Readiness Campaign, which was launched in May 2003,
supplements PFM programs offered by the individual services through Web-
based sources developed with assistance from external organizations.
The Under Secretary of Defense for Personnel and Readiness stated that
the department initiated the campaign to improve the financial
management resources available to servicemembers and their families and
to stimulate a culture that values financial health and savings. The
campaign allows installation-level providers of PFM programs to access
national programs and services developed by federal agencies and
nonprofit organizations.
The primary tool of the Financial Readiness Campaign has been a Web
site designed to assist PFM program managers in developing installation-
level campaigns to meet the financial management needs of their local
military community. This Web site is linked to the campaign's 27
partner organizations (e.g., federal agencies, Consumer Federation of
America, and service relief/aid societies) that have pledged to support
DOD in implementing the Financial Readiness Campaign. DOD's May 2004
assessment of the campaign[Footnote 13] noted, however, that
installation-level PFM staffs had made minimal use of the campaign's
Web site. DOD campaign officials stated that it was early in
implementation of campaign efforts and that they had been brainstorming
ideas to repackage information given to PFM program managers, as well
as servicemembers and their families.
Command Financial Specialists and PFM Program Staff Are Available for
Financial Education and Counseling:
At the installation level, the military services provide command
financial specialists, who are usually senior enlisted personnel
trained by PFM program managers, to assist servicemembers with
financial issues. These noncommissioned officers may perform the
education and counseling role of the command financial specialist as a
collateral or full-time duty. The Navy, Marine Corps, and Army use
command financial specialists to provide unit assistance to
servicemembers in financial difficulties. The Air Force does not use
command financial specialists within the unit, but has the squadron
First Sergeant provide first-level counseling.
Individual servicemembers who require counseling beyond the capability
of the command financial specialists or First Sergeants in the Air
Force can see the installation's PFM program manager or PFM staff. The
PFM program manager is a professional staff member designated and
trained to organize and execute financial planning and counseling
programs for the military community. PFM program managers and staff
offer individual financial counseling as well as group classes on
financial issues.
Free Legal Assistance Offered, but Servicemembers Do Not Make Full Use
of This Assistance:
DOD provides free legal assistance on contracts and other financial
documents at installations, but servicemembers do not make full use
this assistance. For example, legal assistance attorneys may review
purchase contracts for large items such as homes and cars. In addition,
the legal assistance attorneys offer classes on varying financial
issues including powers of attorney, wills, and divorces. However,
legal assistance attorneys at the 13 installations we visited for our
April 2005 report stated that servicemembers rarely seek their
assistance before entering into financial contracts for goods or
services such as purchasing cars or lifetime film developing.
Instead, according to the attorneys, servicemembers are more likely to
seek their assistance after encountering problems. For example, used
car dealers offered low interest rates for financing a vehicle, but the
contract stated that the interest rate could be converted to a higher
rate later if the lender did not approve the loan. Servicemembers were
later called to sign a new contract with a higher rate. By that time,
some servicemembers found it difficult to terminate the transaction
because their trade-in vehicles had been sold.
Legal assistance attorneys, as well as other personnel in our
interviews and focus groups, noted reasons why servicemembers might not
take greater advantage of the free legal assistance before entering
into business agreements. They stated that junior enlisted
servicemembers who want their purchases or loans immediately may not
take the time to visit the attorney's office for such a review.
Additionally, the legal assistance attorneys noted that some
servicemembers feared information about their financial problems would
get back to the command and limit their career progression.
Service Relief/Aid Societies Provide Financial Assistance:
Each service has a relief or aid society designed to provide financial
assistance to servicemembers. The Army Emergency Relief Society, Navy-
Marine Corps Relief Society, and the Air Force Aid Society are all
private, nonprofit organizations. These societies provide counseling
and education as well as financial relief through grants or no-interest
loans to eligible servicemembers experiencing emergencies. Emergencies
include funds needed to attend the funeral of a family member, repair a
primary vehicle, or buy food. For example, in 2003, the Navy-Marine
Corps Relief Society provided $26.6 million in interest-free loans and
$4.8 million in grants to servicemembers for emergencies.
Some servicemembers in our focus groups stated that they would not use
grants or no-interest loans from a service society because they take
too long, are intrusive because the financial institution or relief/aid
society requires in-depth financial information in the loan or grant
application, or could be career limiting if the command found out the
servicemembers were having financial problems. The Army Emergency
Relief Society attempted to address the time and intrusiveness concerns
with its test program, Commander's Referral, for active duty soldiers
lacking funds to meet monthly obligations of $500 or less. After the
commander approves the loans, the servicemembers can expect to receive
funds quickly. However, noncommissioned officers in our individual
interviews and focus groups said the program still did not address
servicemembers' fears that revealing financial problems to the command
could jeopardize their careers.
Non-DOD Resources May Be Used When Sevicemembers Need Additional
Financial Support or Confidentiality:
Servicemembers may choose to use non-DOD resources if they do not want
the command to be aware of their financial conditions or they need
financial products or support not offered through DOD, the services, or
the installation. In such cases, servicemembers may use other financial
resources outside of DOD, which are available to the general public.
These can include banks or credit unions for competitive rates on home
or automobile loans, commercial Web sites for interest rate quotes on
other consumer loans, consumer counseling for debt restructuring, and
financial planners for advice on issues such as retirement planning.
Armed Forces Disciplinary Control Boards Can Help Curb Predatory
Lending Practices:
DOD has used Armed Forces Disciplinary Control Boards to help curb
predatory lending practices and minimize their effects. These boards
and the recommendations that they make to an installation commander to
place businesses off-limits to servicemembers can be effective tools
for avoiding or correcting unfair practices. However, data gathered
during some of our site visits to the various installations revealed
few times when the boards were used to address predatory lending
practices. For example, the board at Fort Drum, New York, had not met
in about 4 years, and the board's director was unaware of two lawsuits
filed by the New York Attorney General that involved Fort Drum
servicemembers.
* The Attorney General settled a lawsuit in 2004 on behalf of 177
plaintiffs--most of whom were Fort Drum servicemembers--involving a
furniture store that had improperly garnished wages pursuant to
unlawful agreements it had required customers to sign at the time of
purchase.
* The Attorney General filed a lawsuit in 2004 involving catalog sales
stores. He characterized the stores as payday-lending firms that
charged excessive interest rates on loans disguised as payments toward
catalog purchases. Some servicemembers and family members at Fort Drum
fell prey to this practice. The Attorney General stated that he found
it particularly troubling that two of the catalog stores were located
near the Fort Drum gate.
In contrast to the Fort Drum situations, businesses near two other
installations we visited changed their lending practices after boards
recommended that commanders place or threaten to place the businesses
on off-limits lists. Despite such successes, boards might not be used
as a tool for dealing with predatory lenders for a variety of reasons.
For example, as a result of high deployments, commanders may minimize
some administrative duties, such as convening the boards, to use their
personnel for other purposes. In addition, the boards may have little
basis to recommend placing or threatening to place businesses on the
list if the lenders operate within state laws. Furthermore, significant
effort may be required to put businesses on off-limits lists. While
recognizing these limitations, in our April 2005 report we nonetheless
recommended that all Armed Forces Disciplinary Control Boards be
required to meet twice a year. In responding to our recommendation, DOD
indicated that it intended to establish a requirement for the boards to
meet even more frequently--four times a year--and direct that
businesses on the off-limits list for one service be off-limits for all
services.
DOD Lacks Oversight Framework for Assessing and Monitoring PFM Program
Effectiveness:
Although DOD has made resources available to assist servicemembers, it
lacks the results-oriented, departmentwide data needed to assess the
effectiveness of its PFM programs and provide necessary oversight. The
November 2004 DOD instruction that provides guidance to the services on
servicemembers' financial management does not address program
evaluation or the reports that services should supply to DOD for its
oversight role.[Footnote 14] In our 2003 report,[Footnote 15] we noted
that an earlier draft of the instruction emphasized evaluating the
programs and cited metrics such as the number of servicemembers with
wages garnished. DOD officials said that these metrics were eliminated
because the services did not want the additional reporting requirements.
The only DOD-wide evaluative data available for assessing the PFM
programs and servicemembers' financial conditions were obtained from a
general-purpose annual survey that focuses on the financial conditions
of servicemembers as well as a range of other unrelated issues. The
data were limited because (1) DOD policy officials for the PFM programs
can only include a few financial-related items to this general purpose
survey, (2) a response rate of 35 percent on a March 2003 active duty
survey leads to questions about the generalizability of the findings,
and (3) DOD has no means for confirming the self-reported information
for survey items that ask about objective events such as filing for
bankruptcy. Without an oversight framework requiring common evaluation
DOD-wide and reporting relationships among DOD and the services, DOD
and Congress do not have the visibility or oversight they need to
assess the effectiveness of DOD's financial management training and
assistance to servicemembers. In response to a recommendation in our
April 2005 report for DOD to develop a DOD-wide oversight framework and
formalize its oversight role for the PFM programs, the department
indicated that it is pursuing management information that includes
personal finances to support its implementation of the President's
Management Agenda and to comply with the Government Performance Results
Act.
Concluding Observations:
In summary, as mentioned earlier in my testimony, Congress and DOD have
taken steps to decrease the likelihood that deployed and nondeployed
servicemembers will experience financial problems. The prior increases
in compensation, efforts to increase the financial literacy of
servicemembers, and fuller utilization of the tools that DOD has
provided for addressing the use of predatory lenders should positively
affect the financial conditions of military personnel. While additional
efforts are warranted to implement our recommendations on issues such
as improving DOD's oversight framework for assessing its PFM programs,
some of these efforts to address the personal financial conditions of
servicemembers and correct past programmatic shortcomings are well
underway. Sustaining this momentum will be key to minimizing the
adverse effects that personal financial management problems can have on
the servicemember, unit, and service.
Madam Chairwoman and Members of the Subcommittee, this concludes my
prepared statement. I would be happy to respond to any questions you
may have.
Staff Contact and Acknowledgments:
For further information regarding this testimony, please contact me at
202-512-6304 or melvinv@gao.gov. Individuals making key contributions
to this testimony include Jack E. Edwards, Assistant Director; Renee S.
Brown; Marion A. Gatling; Cody Goebel; Barry Kirby; Marie A. Mak; Terry
Richardson; and John Van Schaik.
[End of section]
Related GAO Products:
Financial Product Sales: Actions Needed to Protect Military Members.
GAO-06-245T. Washington, D.C.: November 17, 2005.
Financial Product Sales: Actions Needed to Better Protect Military
Members. GAO-06-23. Washington, D.C.: November 2, 2005.
Military Personnel: DOD Needs Better Controls over Supplemental Life
Insurance Solicitation Policies Involving Servicemembers. GAO-05-696.
Washington, D.C.: June 29, 2005.
Military Personnel: DOD's Comments on GAO's Report on More DOD Actions
Needed to Address Servicemembers' Personal Financial Management Issues.
GAO-05-638R. Washington D.C.: May 11, 2005.
Military Personnel: More DOD Actions Needed to Address Servicemembers'
Personal Financial Management Issues. GAO-05-348. Washington, D.C.:
April 26, 2005.
Military Personnel: DOD Tools for Curbing the Use and Effects of
Predatory Lending Not Fully Utilized. GAO-05-349. Washington, D.C.:
April 26, 2005.
Credit Reporting Literacy: Consumers Understood the Basics but Could
Benefit from Targeted Educational Efforts. GAO-05-223. Washington,
D.C.: March 16, 2005.
DOD Systems Modernization: Management of Integrated Military Human
Capital Program Needs Additional Improvements. GAO-05-189. Washington,
D.C.: February 11, 2005.
Highlights of a GAO Forum: The Federal Government's Role in Improving
Financial Literacy. GAO-05-93SP. Washington, D.C.: November 15, 2004.
Military Personnel: DOD Needs More Data Before It Can Determine if
Costly Changes to the Reserve Retirement System Are Warranted. GAO-04-
1005. Washington, D.C.: September 15, 2004.
Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-911. Washington, D. C.:
August 20, 2004.
Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-990T. Washington, D.C.:
July 20, 2004.
Military Personnel: Survivor Benefits for Servicemembers and Federal,
State, and City Government Employees. GAO-04-814. Washington, D.C.:
July 15, 2004.
Military Personnel: DOD Has Not Implemented the High Deployment
Allowance That Could Compensate Servicemembers Deployed Frequently for
Short Periods. GAO-04-805. Washington, D.C.: June 25, 2004.
Military Personnel: Active Duty Compensation and Its Tax Treatment. GAO-
04-721R. Washington, D.C.: May 7, 2004.
Military Personnel: Observations Related to Reserve Compensation,
Selective Reenlistment Bonuses, and Mail Delivery to Deployed Troops.
GAO-04-582T. Washington, D.C.: March 24, 2004.
Military Personnel: Bankruptcy Filings among Active Duty Service
Members. GAO-04-465R. Washington, D.C.: February 27, 2004.
Military Pay: Army National Guard Personnel Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-413T. Washington, D.C.:
January 28, 2004.
Military Personnel: DOD Needs More Effective Controls to Better Assess
the Progress of the Selective Reenlistment Bonus Program. GAO-04-86.
Washington, D.C.: November 13, 2003.
Military Pay: Army National Guard Personnel Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-89. Washington, D.C.:
November 13, 2003.
Military Personnel: DFAS Has Not Met All Information Technology
Requirements for Its New Pay System. GAO-04-149R. Washington, D.C.:
October 20, 2003.
Military Personnel: DOD Needs More Data to Address Financial and Health
Care Issues Affecting Reservists. GAO-03-1004. Washington, D.C.:
September 10, 2003.
Military Personnel: DOD Needs to Assess Certain Factors in Determining
Whether Hazardous Duty Pay Is Warranted for Duty in the Polar Regions.
GAO-03-554. Washington, D.C.: April 29, 2003.
Military Personnel: Management and Oversight of Selective Reenlistment
Bonus Program Needs Improvement. GAO-03-149. Washington, D.C.: November
25, 2002.
Military Personnel: Active Duty Benefits Reflect Changing Demographics,
but Opportunities Exist to Improve. GAO-02-935. Washington, D.C.:
September 18, 2002.
(350867):
FOOTNOTES:
[1] See Department of Defense, Report on Personal and Family Financial
Management Programs (Mar. 31, 2002) in response to a House Committee on
Armed Services requirement in the National Defense Authorization Act
for Fiscal Year 2002.
[2] See RAND, Assessing the Personal Financial Problems of Junior
Enlisted Personnel, MR-1444-OSD (2002). This report defines junior
enlisted as those enlisted servicemembers with fewer than 10 years of
service. Our report defines junior enlisted as servicemembers in pay
grades E1 to E4.
[3] The findings cited in this testimony were primarily taken from GAO,
Military Personnel: More DOD Actions Needed to Address Servicemembers'
Personal Financial Management Issues, GAO-05-348 (Washington, D.C.:
Apr. 26, 2005); and GAO, Military Personnel: DOD's Tools for Curbing
the Use and Effects of Predatory Lending Not Fully Utilized, GAO-05-349
(Washington, D.C.: Apr. 26, 2005).
[4] See GAO, Highlights of a GAO Forum: The Federal Government's Role
in Improving Financial Literacy, GAO-05-93SP (Washington, D.C.: Nov.
15, 2004) for an overview of financial literacy issues. This report
resulted from a July 28, 2004, forum that GAO hosted to develop
recommendations on the role of the federal government in improving
financial literacy. The forum's participants included a select group of
individuals with expertise in financial literacy and education. They
included representatives of federal and state agencies, the financial
industry, nonprofit organizations, and academic institutions.
[5] Pub. L. No. 108-159, Title V, (2003).
[6] Department of Treasury, Internal Revenue Service, Armed Forces' Tax
Guide: For Use in Preparing 2005 Returns, Publication 3, Cat. No.
46072M. This publication noted that all military pay for the month is
excluded from income when an enlisted servicemember, a warrant officer,
or commissioned officer served in a combat zone during any part of a
month or while hospitalized as a result of service in the combat zone.
The amount of the exclusion for a commissioned officer (other than a
warrant officer) is limited to the highest rate of enlisted pay, plus
hostile fire/imminent danger pay for each month during any part of
which an officer served in a combat zone or while hospitalized as a
result of service there.
[7] DOD's March 2003 survey sample consisted of 34,929 individuals
identified by stratified random sampling procedures. DOD reported that
completed surveys were received from 10,828 respondents, which resulted
in an overall weighted response rate for eligible servicemembers,
corrected for nonproportional sampling of 35 percent.
[8] The sampling errors cited for fig. 1 also apply for these findings.
[9] See GAO, Military Pay: Army Reserve Soldiers Mobilized to Active
Duty Experienced Significant Pay Problems, GAO-04-911 (Washington,
D.C.: Aug. 20, 2004).
[10] See GAO, Military Personnel: Observations Related to Reserve
Compensation, Selective Reenlistment Bonuses, and Mail Delivery to
Deployed Troops, GAO-04-582T (Washington, D.C.: Mar. 24, 2004).
[11] See GAO, Financial Product Sales: Actions Needed to Protect
Military Members, GAO-06-245T (Washington, D.C.: Nov. 17, 2005) and
Financial Product Sales: Actions Needed to Better Protect Military
Members, GAO-06-23 (Washington, D.C.: Nov. 2, 2005).
[12] The DOD Instruction 1342.27, dated November 2004, states that
"within 3 months after arriving at the first permanent duty station, a
servicemember shall demonstrate a basic understanding of pay and
entitlements, banking and allotments, checkbook management, budgeting
and saving (to include the thrift savings plan), insurance, credit
management, car buying, permanent change of station moves . . . and
information on obtaining counseling or assistance on financial
matters." The instruction, however, does not specify how this is to be
measured. It simply says that such an understanding means to comprehend
the underlying principles of a subject and apply them to everyday life
situations.
[13] Office of the Deputy Under Secretary of Defense (Military
Community and Family Policy), Initial Assessment and Follow-on Plan for
the Department of Defense Financial Readiness Campaign (May 27, 2004).
[14] DOD Instruction 1342.27, Personal Financial Management for Service
Members (Nov. 12, 2004).
[15] See GAO, Military Personnel: DOD Needs More Data to Address
Financial and Health Care Issues Affecting Reservists, GAO-03-1004
(Washington, D.C.: Sept. 10, 2003).
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