Military preparedness meets its match: Finances

Twenty-four times in 37 years: That's how many times Holly Petraeus, the assistant director for the Consumer Financial Protection Bureau in the Office of Servicemember Affairs—and "military brat"—has moved during her lifetime.

"I don't know any career plan that has that many moves," said Petraeus, the wife of retired Gen. David H. Petraeus.

It's a lifestyle that creates a number of financial challenges. Moving frequently—commonly to rural areas with limited career options—military families oftentimes find themselves relying on one income, or with one spouse unable to generate the level of income their professional designation should generate. Think a master's- or doctorate-holder working in the local Walmart because it's the only game in town, and at a time when the family is growing in size.

"When you have to move every three or four years, spousal employment can be a challenge," said Scott Halliwell, certified financial planner with USAA, a financial services company originally created to offer U.S. Army officers auto insurance. "Stability of income can change, and it's hard if you're constantly starting over to move up the ladder."

For a good portion of her husband's military career—active duty in the Navy, which took them to Japan, Germany and U.S. states where she was not licensed—clinical psychologist Debbie Bradbard, a Ph.D., was unable to work. "I'm on 10-plus moves," said Bradbard, who is the acting director of research and policy for Blue Star Families, a support organization for those leading lives in the military. "I can't even keep count."

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The unique nature of military life is one of the reasons military families need to be extra smart when it comes to financial planning.

"There can be a lot of disconnect in a military family when one is away and the other [is] making financial decisions," said Virginia Morris, co-founder of Lightbulb Press, which has published two guides on civilian life and investing for the military.

The winding down of conflicts in the Middle East and the "involuntary layoffs" within the Armed Forces as the defense budget decreases in the years ahead means there are likely to be more members of the military at home looking for work, unable to bank on a U.S. government paycheck or move into retirement.

These military shifts mean advanced planning is essential for financial success—and making sure a transition plan for benefits, including health insurance and pensions, is secured before departure from the service. Morris recommends starting to think about a post-military financial plan at least six months before a service member is actually out.

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"These are issues we all need to face," said Mark Leyes, a spokesman for California's Department of Business Oversight, who has worked on many issues related to military financial preparedness and protection.

Right outside the gates of U.S. military bases are the types of opportunities that can get the young and enlisted into a lot of consumer trouble without much effort.

Halliwell said young men come back from deployments with significant amounts of money—they receive increased pay when deployed to combat zones—and that makes them an easy target for consumer spending. They are also often inexperienced when it comes to money and are all gathered in one location.

"Look around military bases and there are lots of opportunities for people to spend money: car dealerships, custom-car shops—you name it," Halliwell said.

Self-financing auto dealers with ruthless repossession standards, electronics stores and jewelers selling at marked-up rates, and representatives from for-profit colleges who may offer an inferior education while making money by recruiting those who are still enlisted and will qualify for post-9/11 GI bills are just some examples of the way in which the military is a prime example of the "buyer beware" philosophy endemic across the country.

"The most unique one I saw was outside a base in Virginia where you could rent rims for your car," Petraeus said. "I was amused because it never occurred to me to rent rims for a car."

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On the "Ask USAA" section of its website, a typical questioner might cite a $700 monthly truck payment and wonder if he or she can "just give it back to the dealership," Halliwell said.

One aspect of military life that can contribute to excessive spending is stress, and stress can lead to questionable decision-making or retail spending as a form of self-medication.

"Most people don't have to worry about a spouse being sent to Afghanistan or dealing with explosive device—and some people need retail therapy to deal with it," Halliwell said.

"I will say that we use that term, retail therapy, somewhat jokingly during deployments, and now it's service members located overseas who can overspend online, too, but we see that in civilian world as well," Petraeus said.

Even if a military family has its spending under control, tight finances and lack of career opportunity can lead to bad, if not outright, disastrous financial decisions. Bradbard said one of the most important messages she tries to instill is to never make short-term decisions with negative long-term consequences.

Having one spouse at home trying to manage finances and a family on his or her own can spur hasty decisions, such as a mom with kids in tow agreeing to an overdraft charge because she is short on a bill at the grocery store, just to keep the line of customers moving. Then think of that happening time and time again.

"If just paying it that one time, it's not a big deal, but if it [happens] more and more, that's a problem," Bradbard said.

Alongside the car dealerships located on the edge of military bases, a major problem in recent years has been the rise of payday loan companies targeting the military. Federal legislation—the Military Lending Act of 2007—has cracked down on those practices.

Petraeus said that even though the federal legislation has helped, it was written narrowly enough that lenders find ways around it.

For example, if a lender can't charge higher than a 36 percent interest rate on a loan of 91 days or less, they can make the loan term 92 days and are then free to charge much higher interest.

"The Department of Defense is looking at this again this year to see if it needs to be changed," she said.

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In addition, the Internet has changed the nature and scope of the predation. "Until a few years ago, it was a storefront operation," said Leyes at California's Department of Business Oversight. "There has been a real expansion of payday lending online. One of the concerns is that without physical presence, it becomes harder to enforce," he said.

Leyes warned that since oftentimes real financial issues may require military families to take out loans, it is difficult to argue against payday lending companies that are abiding by the law of the land.

"That's where we get into education and outreach programs," he said. "As long as it is legal—and it will be as long as the legislature allows—people need to understand the risks, obligations and cost."

There are ways to prey on need for current cash, according to Morris at Lightbulb Press. "There are no easy answers other than constant vigilance and awareness," she said.

Leyes said the new regulations have arguably moved payday loans down the list of predatory financial schemes.

"It's probably not No. 1 anymore, but it is an issue because, at the end of the day, it is a very expensive form of borrowing," he said.

A type of scam every military family is susceptible to—and which is becoming more pervasive—is the signing away of military pensions.

"We've seen more of the pension schemes in the past few years," Leyes said. These predatory companies offer a cash advance against a pension balance.

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Petraeus said the pension schemes are not new.

"I remember a big uproar in the early 2000s when the 'Military Times' used to run ads for companies saying, 'We will buy your pension.' It still happens," she said. "It's usually pennies on the dollar."

It will continue to be a big issue for military families as service people retire in greater numbers in the years ahead.

Even though a military pension cannot have its benefits assigned to a third-party, these schemes work by offering a cash advance to the pension holder, who has to create a separate bank account into which future pension benefits must be deposited. The perpetrators of the scam can take money out of that separate bank account.

Two story lines tend to dominate how the military is portrayed in popular stories.

They are either heroes or victims—and rarely portrayed in between these two extremes. Take the ongoing U.S. Department of Veteran Affairs hospital scandals, more recent headline coverage of military sexual assault and last week's settlement between the government and Sallie Mae over illegal student loans made to members of the military.

"They do get victimized, and I don't want to minimize it," Bradbard said, though those in the military—including Bradbard herself—prefer not to let the victim complex be the overarching narrative.

"This is a very special community with really amazing people who serve their country, and it's an awesome world," Petraeus said. "To pity anyone in the military is diminishing the value of what they do and the camaraderie they have."

USAA's Halliwell said he tells members of the military they have the same starting place as everyone else—inadequate financial literacy and a history of bad decision-making—and it's from that point on they need to lconsider issues specific to military life.

"Military members need to be smarter than civilians and make better decisions, but they are not impossible decisions," Halliwell said.

For more information:

Blue Star Families recently published its Financial Readiness report.

The Consumer Financial Protection Bureau site for servicemembers has many resources related to protecting finances and planning for the future.

Scott Halliwell is a manager of the "Ask USAA" online community.

Leyes oversees the California Department of Business Oversight's "Troops Against Predatory Scams (TAP$) program.