Basics Training

The Defense Department is waging war against an enemy that is threatening the Navy and other branches of the armed services: financial illiteracy.

Each year, the financial woes of service members cost the military--and, in effect, taxpayers--$677 million to $957 million in direct and indirect costs, says E. Thomas Garman, a professor of personal finance education at Virginia Tech in Blacksburg, Va. Last year, Garman conducted an exhaustive study on the financial state of Navy members, the results of which were used to extrapolate numbers for the entire armed services.

In a single year, the Navy processes more than 123,000 letters of indebtedness and copes with 75,000 checks bounced at its own commissaries. About 35,000 members of the Navy had their wages garnished to pay a debt, while nearly half--43%--of active-duty personnel reported having trouble paying monthly bills. And about 20% of the Navy’s work force--91,000 people--requested financial help from the Navy-Marine Corps Relief Society, which paid out $48 million in direct aid, Garman says. Other branches of the service are equally beset, experts say.

Dealing with the bad checks is only one of the costs the military must deal with. It also incurs productivity losses resulting from the time it takes for service members and their commanding officers to fill out forms and shuffle paperwork to address financial ills.

In the civilian world, corporations are reluctant to step into the personal financial lives of their employees. But the military, which takes on a parental role for enlistees, feels an obligation to get involved.

Over the last several years, every branch of the service has started financial counseling programs aimed at whipping service members into better economic shape. The Navy has launched a particularly aggressive program that involves training and dispatching financial counselors to every installation, so those with financial troubles won’t have to go far to seek advice.

The Army has emulated the Navy’s program, and it now appears to be expanding rapidly, says Ron Stamper, consumer affairs and financial assistance program manager at the Army’s installation at Ft. Hood, Texas.

“I am getting phone calls almost on a daily basis from other installations that want to find out more about the program,” Stamper adds.

The financial advice that’s being dispensed--often in conjunction with nonmilitary operations, such as the Consumer Credit Counseling Service--involves budget counseling and basic financial education, experts say. Many servicemen and women are deeply and disastrously in debt.

“We have noticed in the last two years that unsecured debt has doubled from an average of $8,000 to $16,000,” says Dean Brassington, financial education services supervisor at the Navy’s Financial Services Unit in Norfolk, Va., who works with some of the more serious cases. “The debt-to-income ratio has risen from 28% to 40%. That doesn’t include mortgage debt, either. That’s simply unsecured loans.”

When a member of the military gets into financial hot water, it’s a professional matter as well as a personal one, Stamper says.

“In the civilian world, you can fail to pay a bill or file for bankruptcy and it won’t necessarily catch up with you,” he says. “Here it can cost you your job.”

Indeed, applicants’ financial woes are behind about 60% of denied security clearances, Garman says.

Moreover, because the military legally becomes a serviceman or woman’s surrogate parent, even relatively minor financial transgressions are taken seriously.

When military personnel bounce a check off-base, a creditor can contact their commanding officer, who will in turn contact the offending party and send a trail of paperwork up and down the chain of command, Garman says. That creates a time-consuming and costly waste of effort.

Financial woes are also partly to blame for stress-related illnesses, which eat away at productivity and job performance both in and out of the service. And for members of the armed services, this could have especially disastrous consequences.

“In the military, you are dealing with life-and-death situations every day,” says Garman. “The margin for error is slim.”

What is the cause of all the financial trouble? Experts differ, citing everything from the average age of service members to low pay, loneliness and financial cons.

“They [military members] are not necessarily in worse shape than anyone else, but they have some unique problems,” says Karen P. Varcoe, a consumer economics specialist for the University of California system, who has worked with all branches of the service.

“They are young. For many of them it’s their first time away from home,” says Varcoe, who is based in Riverside. “But they’re getting a steady paycheck, so the first thing they do is go out and buy a hot car.

“Then they are sitting in their room and they are lonely, so they buy a stereo system. And they’re still lonely, so they go out and find a girl and get married. Pretty soon, they’re living off-base, and they’ve got dependents. It’s very easy to get over your head.”

In addition, servicemen and women are asked to move relatively frequently. This can result in a working spouse’s losing a job, throwing an otherwise sound situation into turmoil, Varcoe says.

And because so many of these young people are financially unsophisticated, they’re considered easy prey for financial scams ranging from outright swindles to simple overcharging, Varcoe says. Brassington says he’s seen service members who have auto loans with interest rates as high as 63%, about six times the average rate.

Others say military personnel often fall prey to “rent-to-own” operations that sell furniture, appliances and even auto supplies for 300 to 500 times the normal retail price.

By and large, the military’s financial counselors do nothing more dramatic than work out budgets and dispense shopping tips on everything from reasonable auto-loan rates to how to get more for your money at the supermarket and avoid scams.

Servicemen and women are encouraged to allow counselors to review purchase contracts before signing them. The Navy is also preparing classes on CD-ROM.

Although there is little official tracking of the financial counseling system’s performance, some counselors say they’ve seen results.

After working with one Air Force group, Varcoe found that the average participant saved more than $300 on groceries in the last year--and improved his or her nutrition at the same time. (One of her tips is to forgo prepared and processed foods in favor of cheaper fresh foods prepared at home.)

Stamper says that in just a year his students have been able to dramatically reduce their debts--paying off about $657,000 of the $2.3 million the group collectively owes. That, in turn, has significantly cut back the number of people lining up for economic aid.

In fact, Garman maintains that private industry could learn a thing or two from the military. Companies could easily partner with organizations, such as the Consumer Credit Counseling Service, to help their workers become financially healthy. He points out that such moves would surely have a beneficial effect on both productivity and profitability.

“Most employers today do not help workers who have personal financial management problems,” Garman says, “because they are ignorant about how expensive it is in terms of productivity losses.”

Kathy M. Kristof is a syndicated columnist and author of “Kathy Kristof’s Complete Book of Dollars and Sense.” Write to her in care of Personal Finance, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail kathy.kristof@latimes.com