Financial readiness is a critical challenge facing the nation’s naval services, and military spouses are on the front lines of that battle. The wives and husbands of service members often are the keepers of family financial readiness, shouldering primary responsibility for household budgeting, savings and investments, and retirement planning. This is particularly true during extended deployments.
But spouses’ important role in family financial readiness is not always reflected in the related services delivered by the military. Most efforts do not address financial training and education for wives and husbands, and the military tends to overlook the professional development and advancement needs of dual-career military families.
The result is military families inadequately prepared to make financial decisions related to retirement, career milestones, and other life events. Seven out of ten career service members and military spouses report feeling financially stretched month-to-month.1 One in three service members lists financial issues as the biggest family stressor related to their time in the military.2
To improve the financial readiness of military families—and the retention of career service members—military spouses must be provided with meaningful support.
Expand Educational efforts
Career military families are significantly more likely than their civilian counterparts to have completed a financial training or education program. In a recent survey, 47 percent reported they had done so—more than double the 19 percent rate reported by the general population.3
Nevertheless, the 2015 Military Compensation and Retirement Modernization Commission (MCRMC) final report recommended “implementing a more robust financial and health benefit training program,” noting:
Existing financial literacy programs do not adequately educate Service members and their families on financial matters. According to the 2013 Blue Star Families Annual Lifestyle Survey, only 12 percent of Service member respondents indicated they were receiving financial education from Service member training. Furthermore, 90 percent indicated they would like to receive more preventive financial education, and 82 percent indicated their spouse should be included in financial readiness courses.4
By expanding training, education, and face-to-face coaching, the military can improve financial readiness among these families.
Career challenges’ Impact
Spouses face considerable challenges in pursuing meaningful work and contributing to household income. The MCRMC report notes that the frequent moves and other career demands of active-duty service members greatly impact the ability of their spouses to:
- Gain employment. Many employers avoid hiring military spouses because they see them as temporary workers.
- Build a career. Depending on their careers, spouses may need to earn new certificates and licenses every time they move to a new state.
- Generate income. Frequent moves make it difficult to stay at one company long enough to earn promotions, raises, and benefits.
- Save retirement funds. Frequent moves make it hard to build retirement benefits with one company.
“Serving in the military is truly a sacrifice for the entire family,” according to the MCRMC report. “Today’s American families often depend on dual income spouses to pay the bills and save for retirement. When one spouse serves as an active-duty service member, dual income is often not possible.”5
These challenges can also affect the career trajectory of service members. Some members may choose to leave active-duty service to enable both them and their spouses to enjoy meaningful careers, secure the benefits of a dual-income household, and pursue the financial goals and dreams for their family’s future.
Spouses deserve a voice in decision making
Because military spouses play a critical role in ensuring family financial readiness, they should be included in decisions involving financial benefits offered to service members. But they are often overlooked.
For example, many service members recently had to decide whether to opt in to the Blended Retirement System (BRS). The program went into effect in January 2018 and represents a major shift in military retirement planning. It cut the traditional pension—which has provided guaranteed monthly retirement income to generations of career military families—by 20 percent to pay for a defined contribution program that includes automatic and matching Thrift Savings Plan contributions, mid-career continuation pay, and a lump sum buyout option. To understand and make the most of these valuable benefits, service members and their spouses need to work together. The system should give husbands and wives the ability to weigh in on such important decisions.
A positive example of including spouses in benefit decisions is the Survivor Benefit Plan (SBP). SBP is an insurance program that allows military retirees to protect their spouses (or other survivors) by having a portion of their retired pay continue after their death, providing a guaranteed lifetime income. The decision to enroll in this program is made prior to retirement and is irrevocable. For married personnel, it is a joint decision. The spouse must consent to any protection level that is less than 100 percent.
There is still room for improvement, however. The MCRMC report recommends providing “retiring service members and their spouses with an individualized, detailed analysis of the costs and benefits of the alternative SBP options, including potential costs and income from the current and new SBP programs.”6
Military spouses deserve this level of involvement in all decisions affecting long-term financial benefits.
Getting on the right financial footing
Even before spouse education and training programs are implemented, unit leaders can take meaningful actions. Invite spouses in whenever there is an active-duty training session. Have regular outreach on this topic to the unit ombudsman and family volunteer coordinators. They can work though the local spouse club and work-life staffs. They might consider scheduling training outside the regular day, perhaps an evening or weekend session, to reach more families.
And of course service members can make a difference, too. They should focus on ensuring their spouses are well informed. At the very least, service members should take home information on benefits so spouses can incorporate that understanding into household financial planning.
In addition, by implementing the strategies below, spouses can make meaningful strides in getting their families financially squared away:
- Create a budget. Budgets provide an organizational structure. They help families take control of their finances and make their money work for their current situation and future goals. First, subtract necessary expenses such housing, groceries, and car insurance from household income. Then distribute the remaining money among nonessential items such as shopping, gym memberships, and dining out. Many people are surprised to learn where their money is going. They often discover savings opportunities.
- Pay yourself first. Decide how much to save each month and take that money out of every paycheck before it hits the checking account. The easiest way to do this is with an automatic deduction to a savings account.
- Tackle debt. If you have consumer debt, such as a balance on a credit card, create a plan to pay it off as quickly as possible. Once the monthly minimum amount on all debts is paid, use any leftover money to pay off the balances one at a time. Start with the highest interest rate and work down. If you have multiple high-interest rate cards, consider a debt consolidation loan, which simplifies and bundles payments into one bill.
- Save for emergency needs. Families should have three to six months of emergency savings that are easily accessible in the event of unexpected expenses. In addition to a savings account, invest for long-term goals, particularly retirement.
- Don’t skimp on life insurance. Service members are automatically enrolled in low-cost term life insurance coverage under the Service members’ Group Life Insurance, which provides $400,000 of coverage for less than $30 per month. Reducing or declining this coverage is a short-sighted move as it can leave a family underinsured. In fact, some families may need more than $400,000 in coverage to meet their needs.
- Make the most of the Thrift Savings Plan. Commonly referred to as the TSP, this is the go-to retirement investment vehicle for military families. This program can help military families to start saving early—setting aside a portion of every pay increase can make a big difference over time—and build a nest egg during their working years that can be tapped to generate income during retirement. Families that are part of the Blended Retirement System should max out their investments to earn the full 5 percent in matching funds. Families covered under the military’s legacy retirement system do not earn matching funds, but they can still use the TSP to put away dollars for retirement.
- Invest for the long term. Many TSP participants stash their retirement dollars in the G Fund, a government securities fund that offers protection from loss of principal but delivers returns that may not even equal the rate of inflation. It is the most popular TSP investment option, but it has the lowest annual rate of return—about 2.3 percent for the past ten years. Steering away from stocks and toward safe investment options may not be the best choice, especially for long-term investors. While the G Fund may feel like a sanctuary from potential stock market losses, it may not grow enough over time to meet service member families’ future needs.
Prepared for Today & Tomorrow
Financial readiness is one of the most critical elements of the overall preparedness of the nation’s military families. Military spouses play the primary role in managing household finances, and they need expanded training and education efforts and one-on-one support to more effectively deal with the financial challenges they face today—and more confidently address their goals for tomorrow.
1. First Command Financial Behaviors Index®, December 2019. The index assesses financial behaviors, attitudes, and intentions in career military families. A monthly survey collects responses from approximately 200 service members or military spouses in pay grades E-5 and above with household incomes of at least $50,000. The index is compiled by Sentient Decision Science.
2. Blue Star Families, Military Family Lifestyle Survey: Comprehensive Report (2018), https://bit.ly/375WGdm.
3. First Command Financial Behaviors Index, January 2020.
4. Report of the Military Compensation and Retirement Modernization Commission (29 January 2015), 47, https://docs.house.gov/meetings/AS/AS00/20150204/102859/HHRG-114-AS00-20150204-SD001.pdf.
5. Report of the Military Compensation and Retirement Modernization Commission, 225–26.
6. Report of the Military Compensation and Retirement Modernization Commission, 45.