The Calm Before the Storm: How to Be Financially Prepared for a Military Call-Up
/ November 4th, 2002
When you sign up for military service, whether active duty or reserve, you know there's always the possibility of deployment. If you were called up, would you be financially prepared? No matter how long you'll be away, or how far, being unsure about finances can be devastating on the home front.
"When we talk about military personnel and deployments, if our troops aren't financially ready at the time of call-up, and if their families aren't prepared, I can assure you, their quality of life will suffer," says Arty Arteaga, president and CEO of the Defense Credit Union Council, in Washington, D.C. "More important, it affects the mission."
Arteaga, who also is a retired Army colonel with 29 years of service, says preparing for a call-up doesn't happen overnight. This is a process that starts at an early point in one's career and should continue with every move--duty station to duty station.
Financial readiness boot camp
The military provides financial education for everyone, whether active duty or reserve, at initial training sites. The Department of Defense (DOD) is attempting to place education programs at subsequent duty stations so that financial readiness becomes a life-cycle learning process.
"Our folks [defense credit unions] are always leaning forward in the proverbial foxhole to help commanders with financial education," Arteaga says, "but unfortunately, unit commanders don't have the training time to focus on this issue." There are too many other items of critical importance on their plates and, financial education, while extremely important, usually takes a backseat to higher priorities such as training for war.
Given the events of Sept. 11 and the call-up of reserve and National Guard units, still at about 80,000, the DOD has taken a new look at financial literacy. They are working with other professional organizations, such as the National Endowment for Financial Education
), to create a more stable financial environment for the troops.
Financial challenges touch all ranks, but they're more likely to occur in the junior grades.
Though financial challenges touch all ranks, they're more likely to occur in the junior grades. "Some of these junior grade personnel are teenagers," Arteaga says. "They need remedial financial training." NEFE's High School Financial Planning Program®
) is a good match. The HSFPP covers the gamut of financial management subjects and is geared toward high school students. It has been prepared with the teenager/young adult in mind, and can easily be adapted for use by military financial counselors and defense credit unions--just what the troops need.
"One of the most important things the military forgets is that whatever financial training you give to the military member, you also need to give to the family," says Lillie S. Cannon, deputy director of government relations for the National Military Family Association in Arlington, Va.
For example, if it's the military member's spouse who maintains the checkbook
, you could give the military member all the training in the world, but if the spouse is not trained, you'll probably just create marital discord.
Credit unions are on almost every military installation worldwide, and "they are there to help and put together whatever packages are needed to ensure the financial readiness of not only the troops, but of the spouses," Arteaga says.
A salute to budgeting
The first thing anyone should do, whether it's guard, reserve, or active duty, is create a financial readiness plan, Cannon says. This plan should include a solid savings strategy, a solid investment strategy, and a solid insurance strategy.
"A critical issue is not only do you prepare, but prepare wisely."
A savings plan should delegate how much income you'll put into a pure savings account
, how much you'll put into an investment account, and how much you're going to use to live on.
"A savings strategy might keep that younger person from going out and buying that $5,000 stereo system when he or she doesn't really need it--and really can't afford it," Cannon says. Planning helps individuals think ahead to bigger outlays--buying a car, buying a house, or getting married--though these types of plans take a certain amount of discipline that young people often don't have.
Cannon urges military members to also consult their deployment planning guides, in particular the sections about financial literacy and getting financially ready for deployment. Troops also can get help from their base family services centers and supervisors.
"I would encourage all service members not
to wait until they get the actual orders," Cannon says. "If you think there's a possibility of deployment or a PCS (permanent change of station), plan ahead."
"Another step is designating an agent who can act under a power of attorney
(POA) before you leave," says Stephen Eisenberg, senior vice president, general counsel, Pentagon Federal Credit Union, Alexandria, Va. A POA is a document that authorizes an individual to act on your behalf on matters of legal or personal significance if you're unable to act for yourself.
"A critical issue is not only do you prepare, but prepare wisely," Eisenberg adds. "Whomever you're going to put in charge of your financial affairs, make sure it's someone that you have the deepest and most abiding trust in."
Whatever financial training you give to the military member, you also need to give to the family.
Eisenberg, a retired Army judge advocate, says he's seen a number of situations over the years where individuals think someone--a friend or someone they have an intimate relationship with--is going to take care of their affairs, but they end up getting ripped off.
"Power of attorney can be a double-edged sword," says Dave Elliott, president/CEO of Fort Bragg Federal Credit Union, in Fort Bragg, N.C. Even though you'd want this person to do anything for you while you're away, if the relationship goes bad, someone not only could use up all your money, but borrow money in your name as well. It's not uncommon for personnel returning from a deployment to find that they have car payments and credit card bills they didn't have before they left.
Service members also should have an up-to-date will. Most installations offer this service for free or for a very low fee.
"The key point is to have a military plan or budget in place before
you actually get called up," Eisenberg says. Because deployed individuals usually are away for a year or longer, they have to plan for the maintenance of their lifestyle. Know what your family cash flow requirement is. You have to ask, "What if something happens to me? Will there be a cash flow to take care of my family?"
"It's part and parcel of what you've signed on for," he adds.
The Soldiers and Sailors Civil Relief Act (SSCRA) of 1940 provides a level of protection for reservists who are federally activated. The act requires creditors to lower their interest rate to 6% unless the creditor can show that the service member's ability to repay is "not materially affected by such service." SSCRA caps interest rates on pre-existing loans--including mortgages, credit cards, and personal loans. However, loan payments must continue and individuals must advise their lender of their status; the limitation will not automatically be implemented. The creditor may not know of the borrower's change to military status and about the protection of the law.
The first thing anyone should do is create a financial readiness plan.
"Quite frankly, the Act is not the answer to all of the issues associated with being deployed," Arteaga says. "You also have to take into account the shift of responsibilities from the deploying member to the spouse. Household chores and financial tasks that were once done by the military member must now be borne by the spouse. If the spouse isn't prepared to take on this new role, SSCRA aside, financial issues will surface."
If you're a single parent you face a unique financial challenge, Cannon says. You might have to send your children away from the military installation for someone to care for them, she adds. Benefits once afforded by living on a military installation won't be there anymore, like grocery shopping at the commissary and on-base daycare.
The country's reserve component faces other issues. Perhaps the two spouses worked different schedules so they wouldn't have to have pay for child care. If one spouse is deployed, the family now has that additional cost. In that respect, it might not even be cost-effective for the spouse that's home to keep working. On the other hand, a spouse that hadn't been employed may have to get a job in order to provide a little extra income. (Look for an article about military reservists' financial readiness coming soon.)
"Take every financial aspect into account," Cannon says. You have to think about how you're going to save money during this deployment. Issues that seem small, such as the need to communicate by phone and attendant larger phone bills, can become huge, Cannon says. "Then there's the old-fashioned way," she adds, "write letters. It's not immediate contact but you have to think beyond the immediacy."
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