The military has recognized that many of its troops get into financial trouble by frequenting Payday loan companies. The problem has become large enough for the Pentagon to attempt to limit interest charges on loans to military members.
There are several reasons why military members use payday loans. Lack of financial education is one reason many troops run into financial hardship. For many troops, especially young enlisted members, this is their first time living on their own and their first steady paycheck. Many young troops do not know how to handle money and quickly learn that their money will not go as far as they thought it would.
Another big cause for financial hardship for troops is the military pay system itself. All military members receive a base pay, and they usually receive other pay and benefits as well. The two most common are Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS). BAS is a monthly food allowance.
However, there are many other special allowances and special duty pay which can be based on locality, duty, and many other factors. Some of these are tied to inflation, exchange rates, or are prorated based on the amount of time spent in a locality. There are also Hazardous Duty Pay, Imminent Danger Pay, Family Separation Allowance, special tax free provisions for serving in a tax-free zone, Hardship Duty Pay, etc. This is a short explanation and if it sounds confusing, it is. The military pay system is very complex.
To put it simply, many military members do not know how much they will earn from month to month – especially if they are deployed or are on temporary assignment. Not knowing how much your income will be from month to month makes planning and budgeting very difficult and can easily lead to financial hardship.
A very good friend of mine recently spent 4 months on temporary assignment. When he returned to his permanent duty station, he filed his paperwork and received a large check for his per diem. He was due to receive a large reenlistment bonus early next month, so he used his per diem money to pay off some credit card bills.
Unfortunately, the government overpaid him $2000 for his per diem and withdrew the entire amount from his account without warning. When the government makes an overpayment, they just take the money in a lump sum. You then have to contact your military finance section to figure out what happened (they do not notify the military member first).
Like many people, my friend could not easily absorb an immediate loss of $2000. Luckily, he was able to get a short term loan from a family member until he receives his reenlistment bonus next month. If my friend did not have a family member who could help him out, he would have had to get a payday loan or use the credit cards he had worked so hard to pay off.
The government could change the way the take back over-payments. The easiest way would be to notify the member that they will either take back x-amount on a certain date, or they will withhold x-amount from each check for a certain time period. Having your employer take back $2000 at one time and without warning after they paid it to you (and you had no reason to assume they made an error) is irresponsible and causes undue hardship to its employees. This situation doesn’t happen often, but unfortunately it happens more often than it should. I have known several troops who had a significant overpayment taken from their account without warning.
The Pentagon is currently working to streamline military pay and benefits. I hope they can simplify the pay system soon. It is very unfortunate when military members have to focus on their pay and not at the mission at hand.