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.
Comments
I want to play devil’s advocate for a minute.
Let’s first make sure we are comparing apples to apples. The military does indeed have many different types of pay and allowances but let’s remember many civilian employers have the same TYPES of things. Hardship duty pay, hostile fire pay, etc etc are the civilian equivalent to commissions based on sales and performance. The military is simply commissioning you for your extra duties.
This ties me to your comment about it being hard to budget when your pay fluctuates. How do commissioned based sales people have an effective budget? I think we would be silly to criticize the pay system because irrespondible people are budgeting money they don’t really know they have. The only thing a soldier should base his/her budget on are his/her base pay, housing allowance if they are eligible, and food allowance if they are eligible. All other pay is a bonus or an extra and should be treated accordingly. This, to me is the equivalent to budgeting money such as tax refunds, birthday and christmas gift, and stimulus checks. We all know that you don’t base a budget on this fluctuating, mystery money.
The last thing I want to address is the issue of spending money and having the government take it back. Now, this is one thing that bothers me because they do come in and recoup it no questions asked without prior notification and that can be a headache. BUT, again, in your scenario an idividual chose to use the money to pay off credit cards as opposed to sitting on the money until he was confident that it was indeed his. Another comparison to this would be finding $1000 in the public dryer and spending it before you asked if it belonged to someone else. Any time you are being paid money from something that is known to be errored you should set the money aside as if it were never there, then you would have no problems when the grim reaper came for what was rightfully his.
I hope you have looked at all these things before we are so quick to point the nasty finger at an entire pay system. If anything I say we should blame the lack of financial education from parents, schools, and the military to our young men and women who are just learning what the “real world” is like.
Josh, great devil’s advocate response. The education system is sorely lacking when it comes to preparing youth for personal finances, and there are big improvements that can be made in that area.
The military pay system is not perfect, and there is room for improvement. But it is like that in the civilian sector as well. Very nice argument.