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Servicemembers' Financial Needs, but Additional Effort Is Warranted' 
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United States Government Accountability Office:

GAO:

Testimony:

Before the Subcommittee on Oversight and Investigations, Committee on 
Financial Services, House of Representatives:

Military Personnel:

DOD Has Taken Steps to Address Servicemembers' Financial Needs, but 
Additional Effort Is Warranted:

Statement of Valerie C. Melvin: 
Acting Director: 
Defense Capabilities and Management:

GAO-06-749T:

GAO Highlights: 

Highlights of GAO-06-749T, a testimony before the Subcommittee on 
Oversight and Investigations, Committee on Financial Services, House of 
Representatives.

Why GAO Did This Study: 

The finances of servicemembers and their families have been an ongoing 
concern of Congress and the Department of Defense (DOD), especially in 
light of more frequent deployments to support conflicts in Iraq and 
Afghanistan. Adverse effects that may result when servicemembers 
experience financial problems include loss of security clearances, 
criminal or nonjudicial sanctions, adverse personnel actions, or 
adverse impacts on unit readiness. To decrease the likelihood that 
servicemembers will experience financial problems, DOD has requested 
and Congress has granted annual increases in military basic pay for all 
active duty servicemembers and increases in special pays and allowances 
for deployed servicemembers. The military has also developed personal 
financial management (PFM) programs to help avoid or mitigate adverse 
effects associated with personal financial problems. However, studies 
published in 2002 showed that servicemembers continue to report 
financial problems. 

This testimony provides a summary of GAO’s prior work examining 
(1) the extent to which deployments have affected the financial 
conditions of active duty servicemembers and their families, and (2) 
steps that DOD has taken to assist servicemembers with their financial 
needs.

What GAO Found: 

DOD data suggests that deployment status does not affect the financial 
condition of active duty servicemembers, although some deployed 
servicemembers faced certain problems. Data from a 2003 DOD-wide survey 
suggests that servicemembers who were deployed for at least 30 days 
reported similar levels of financial health or problems as those who 
had not deployed. For example, of junior enlisted personnel, 3 percent 
of the deployed group and 2 percent of the nondeployed group indicated 
that they were in “over their heads” financially; and 13 percent of the 
deployed group and 15 percent of the nondeployed group responded that 
they found it “tough to make ends meet but keeping your head above 
water” financially. However, problems receiving family separation 
allowance and communicating with creditors may result in financial 
difficulties for some deployed servicemembers. Based on DOD pay data 
for January 2005, almost 6,000 of 71,000 deployed servicemembers who 
had dependents did not obtain their family separation allowance in a 
timely manner. Furthermore, problems communicating with 
creditors—caused by limited Internet access, few telephones and high 
fees, and delays in receiving ground mail—can affect deployed 
servicemembers’ abilities to resolve financial issues. Additionally, 
some financial products marketed to servicemembers may negatively 
affect their financial condition.

DOD has taken a number of steps to assist servicemembers with their 
financial needs, although some of this assistance has been 
underutilized. These steps include PFM training for servicemembers, 
which is required by all four military services. DOD also provides free 
legal assistance on purchase contracts for large items and other 
financial documents. However, according to the attorneys and other 
personnel, servicemembers do not make full use of available legal 
services because they may not take the time to visit the attorney’s 
office or they fear information about a financial problem would get 
back to the command and limit their career progression. In addition, 
each service has a relief or aid society designed to provide financial 
assistance through counseling and education as well as financial relief 
through grants or no-interest loans. Some servicemembers in our focus 
groups stated that they would not use relief from a service society 
because they take too long, are intrusive, require too much in-depth 
financial information, or may be career limiting if the command found 
out. Servicemembers may use non-DOD resources if they do not want the 
command to be aware of their financial conditions or they need products 
or support not offered through DOD, the services, or the installation. 
Although DOD has taken these steps to assist servicemembers with their 
financial needs, it does not have the results-oriented departmentwide 
data needed to assess the effectiveness of its PFM programs and provide 
necessary oversight. Without an oversight framework requiring 
evaluation and a reporting relationship between DOD and the services, 
DOD and Congress do not have the visibility or oversight needed to 
assess the effectiveness of DOD’s financial management training and 
assistance to servicemembers. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-749T].

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Valerie C. Melvin at 
(202) 512-6304 or MelvinV@gao.gov.

[End of section]

Madam Chairwoman and Members of the Subcommittee:

I am pleased to be here today to discuss the financial service needs of 
military personnel and their families. The finances of servicemembers 
and their families have been an ongoing concern of Congress and the 
Department of Defense (DOD), especially in light of more frequent 
deployments to support the war on terrorism and conflicts in Iraq and 
Afghanistan. DOD's Social Compact, which is part of its human capital 
strategic plan, notes that mission readiness and quality of life depend 
on whether servicemembers use their financial resources responsibly. 
Some adverse effects that may result when servicemembers experience 
serious financial problems include loss of security clearances, 
criminal or nonjudicial sanctions, or adverse personnel actions 
including possible discharge from the military. Servicemembers with 
serious financial issues may also have an adverse impact on the 
readiness of the unit. For example, servicemembers' financial problems 
may take the servicemembers and possibly their unit commanders away 
from their primary duties in order to address problems with creditors. 
In a 2002 report to Congress, the Navy identified an estimated $250 
million in productivity and salary losses due to servicemembers' poor 
personal financial management.[Footnote 1]

Congress and DOD have taken steps to decrease the likelihood that 
deployed and nondeployed servicemembers will experience financial 
problems. DOD has requested and Congress has granted annual increases 
in military basic pay for all active duty servicemembers and increases 
in special pays and allowances for deployed servicemembers, such as the 
family separation allowance and hostile fire/imminent danger pay. The 
military also has developed personal financial management (PFM) 
programs to provide servicemembers with financial literacy training, 
financial counseling, and other assistance to avoid or mitigate the 
adverse effects associated with personal financial problems."

Despite the added compensation and the assistance provided through the 
PFM programs, studies in recent years by DOD and others show that 
active duty servicemembers continue to report financial problems. For 
example, a 2002 study[Footnote 2] noted that 20 percent of junior 
enlisted servicemembers reported that they struggled to make ends meet 
financially and another 4 percent regarded themselves as "in over their 
heads" with respect to their finances.

In this context, my testimony today will summarize our prior work 
examining (1) the extent to which deployments have affected the 
financial conditions of active duty servicemembers and their families 
and (2) steps that DOD has taken to assist servicemembers with their 
financial needs.

My statement is based primarily on our work completed in April 
2005[Footnote 3] and our institutional knowledge from prior reviews 
examining financial issues of servicemembers and their families (see 
GAO Related Products at the end of this testimony statement). Other 
information, such as the current status of our recommendations to DOD 
that were pending at the time when the reports were issued, will also 
be discussed. We conducted our work in accordance with generally 
accepted government auditing standards during May 2006.

Summary:

DOD-wide survey data suggest that deployment status does not affect 
active duty servicemembers' financial conditions, although some 
deployed servicemembers faced additional problems with receiving family 
separation allowances and communicating with creditors and family. DOD 
data based on servicemember responses to a 2003 DOD-wide survey suggest 
that servicemembers who were deployed for at least 30 days reported 
similar levels of financial health or problems as those who had not 
deployed. For example, of the junior enlisted personnel, 3 percent of 
the deployed group and 2 percent of the nondeployed group indicated 
that they were in "over their heads" financially; and 13 percent of the 
deployed group and 15 percent of the nondeployed group responded that 
they found it "tough to make ends meet but keeping your head above 
water" financially. These responses are consistent with the findings 
that we obtained in a survey of all PFM program managers and in focus 
groups conducted during our 13 site visits. However, problems receiving 
family separation allowance promptly and communicating with creditors 
and families may result in financial difficulties for some deployed 
servicemembers. Based on DOD pay data for January 2005, almost 6,000 of 
71,000 deployed servicemembers who have dependents did not obtain their 
family separation allowance in a timely manner. The family separation 
allowance of $250 per month is designed to compensate servicemembers 
for extra expenses (e.g., childcare costs) that result when they are 
involuntarily separated from their families. Not receiving this 
compensation each month to help defray household costs can place a 
financial strain on the family when the servicemembers are deployed. 
Furthermore, problems communicating with creditors--caused by limited 
Internet access, few telephones and high fees, and delays in receiving 
ground mail--can affect deployed servicemembers' abilities to resolve 
financial issues. Failure to avoid or promptly correct serious 
financial problems can result in consequences for these servicemembers, 
such as bad credit ratings or adverse effects on unit readiness and 
morale. Additionally, some financial products marketed to 
servicemembers may negatively affect their financial conditions.

DOD has taken a number of steps to assist servicemembers with their 
financial needs; however, some of this assistance is underutilized. One 
step is PFM training for servicemembers, which is required by all four 
military services, although the extent to which the training is not 
received is unknown because servicewide totals are not always 
collected. DOD also provides legal assistance on purchase contracts for 
large items and other financial documents. According to the attorneys 
and other personnel, servicemembers do not make full use of available 
legal services because they may not take the time to visit the 
attorney's office or they fear information about their financial 
problems would get back to the command and limit their career 
progression. In addition, each service has a relief or aid society 
designed to provide financial assistance through counseling and 
education as well as financial relief through grants or no-interest 
loans. Some servicemembers in our focus groups stated that they would 
not use grants or no-interest loans from a society because they take 
too long, are intrusive because the financial institution or relief/aid 
society requires in-depth financial information in the loan or grant 
application, or could be career limiting if the command found out the 
servicemember was having financial problems. Servicemembers may choose 
to use non-DOD resources if they do not want the command to be aware of 
their financial conditions or they need products or support not offered 
through DOD, the services, or the installation. Furthermore, DOD 
established Armed Forces Disciplinary Control Boards that can make 
recommendations to place businesses off-limits to servicemembers, which 
can be an effective tool for avoiding or correcting unfair practices, 
but data gathered during some of our site visits revealed few times 
when boards were used to address predatory lending practices. Although 
DOD has taken these many steps to assist servicemembers with their 
financial needs, it does not have the results-oriented, departmentwide 
data needed to assess the effectiveness of its PFM programs and provide 
necessary oversight. Without an oversight framework requiring 
evaluation and a reporting relationship between DOD and the services, 
DOD and Congress do not have the visibility or oversight needed to 
assess the effectiveness of DOD's financial management training and 
assistance to servicemembers.

Background:

Because large numbers of Americans lack knowledge about basic personal 
economics and financial planning, U.S. policymakers and others have 
focused on financial literacy, i.e., the ability to make informed 
judgments and to take effective actions regarding the current and 
future use and management of money.[Footnote 4] While informed 
consumers can choose appropriate financial investments, products, and 
services, those who exercise poor money management and financial 
decision making can lower their family's standard of living and 
interfere with their crucial long-term goals.

One vehicle for promoting the financial literacy of Americans is the 
congressionally created Financial Literacy and Education 
Commission.[Footnote 5] Created in 2003, the Commission is charged with 
(1) developing a national strategy to promote financial literacy and 
education for all Americans; (2) coordinating financial education 
efforts among federal agencies and among the federal, state, and local 
governments; nonprofit organizations; and private enterprises; and (3) 
identifying areas of overlap and duplication among federal financial 
literacy activities.

Since at least the 1980s, the military services have offered PFM 
programs to help servicemembers address their financial conditions. 
Among other things, the PFM programs provide financial literacy 
training to servicemembers, particularly to junior enlisted personnel 
during their first months in the military. The group-provided financial 
literacy training is supplemented with other types of financial 
management assistance, often on a one-on-one basis. For example, 
servicemembers might obtain one-on-one counseling from staff in their 
unit or legal assistance attorneys at the installation.

In May 2003, the Office of the Under Secretary of Defense for Personnel 
and Readiness, DOD's policy office for the PFM programs, established 
its Financial Readiness Campaign, with objectives that include 
increasing personal readiness by, among other things, (1) increasing 
financial awareness and abilities and (2) increasing savings and 
reducing dependence on credit. The campaign attempted to accomplish 
these objectives largely by providing on-installation PFM program 
providers with access to national-level programs, products, and support.

To minimize financial burdens on servicemembers, DOD has requested and 
Congress has increased cash compensation for active duty military 
personnel. For example, the average increases in military basic pay 
exceeded the average increases in private-sector wages for each of the 
5 years prior to when we issued our April 2005 report. Also, in April 
2003, Congress increased the family separation allowance from $100 per 
month to $250 per month and hostile fire/imminent danger pay from $150 
per month to $225 per month for eligible deployed servicemembers. The 
family separation allowance is designed to provide compensation to 
servicemembers with dependents for the added expenses (e.g., extra 
childcare costs, automobile maintenance, or home repairs) incurred 
because of involuntary separations such as deployments in support of 
contingency operations like Operation Iraqi Freedom. Hostile fire/ 
imminent danger pay provides special pay for "duty subject to hostile 
fire or imminent danger" and is designed to compensate servicemembers 
for physical danger. Iraq, Afghanistan, Kuwait, Saudi Arabia, and many 
other nearby countries have been declared imminent danger zones. In 
addition to these special pays, some or all income that active duty 
servicemembers earn in a combat zone is tax free.[Footnote 6]

Financial Conditions Similar for Deployed and Nondeployed 
Servicemembers, but Pay Administration and Communication Problems 
Existed for Deployed Members:

Data from DOD suggest that the financial conditions for deployed and 
nondeployed servicemembers and their families were similar. However, 
deployed servicemembers faced problems with the administration of an 
allowance as well as an inability to communicate with creditors. 
Additionally, some financial products marketed to servicemembers may 
negatively affect their financial condition.

Data Suggest Financial Conditions of Deployed Servicemembers and Their 
Families Similar to Nondeployed Servicemembers and Their Families:

In a 2003 DOD-wide survey, servicemembers who were deployed for at 
least 30 days reported similar levels of financial health or problems 
as those who had not deployed. For example, an analysis of the 
responses for only junior enlisted personnel showed that 3 percent of 
the deployed group and 2 percent of the nondeployed group indicated 
that they were in "over their heads" financially; and 13 percent of the 
deployed group and 15 percent of the nondeployed group responded that 
they found it "tough to make ends meet but keeping your head above 
water" financially. Figure 1 shows estimates of financial conditions 
for all servicemembers based on their responses to this 
survey.[Footnote 7]

Figure 1: Self-Reported Financial Condition of Servicemembers Who Were 
and Were Not Deployed for at Least 30 Days at the Time They Completed 
the 2003 DOD Survey[A]:

[See PDF for image] 

Source: GAO analysis of DOD data. 

[A] Sampling errors of estimates for servicemembers who were not 
deployed do not exceed +/-2 percentage points. Sampling errors of 
estimates for servicemembers who were deployed do not exceed +/-5 
percentage points. These sampling errors do not include errors due to 
other sources, such as potential bias attributable to the overall 35 
percent response rate. DOD conducted research to assess the impact of 
this response rate on overall estimates. We have no reason to believe 
that potential nonresponse bias not otherwise accounted for by DOD's 
research is substantial for the variables we studied in this report.

[End of figure]

These responses are consistent with the findings that we obtained in a 
survey of all PFM program managers and during our 13 site visits. In 
the survey of PFM program managers, about 21 percent indicated that 
they believed servicemembers are better off financially after a 
deployment; about 54 percent indicated that the servicemembers are 
about the same financially after a deployment; and about 25 percent 
believed the servicemembers are worse off financially after a 
deployment. Also, 90 percent of the 232 recently deployed 
servicemembers surveyed in our focus groups said that their financial 
situations either improved or remained about the same after a 
deployment.

The 2003 DOD survey also asked servicemembers whether they had 
experienced three types of negative financial events: pressure by 
creditors, falling behind in paying bills, and bouncing two or more 
checks. Again, the findings for deployed and nondeployed servicemembers 
were similar. For example, 19 percent of the deployed group and 17 
percent of the nondeployed group said they were pressured by creditors; 
21 percent of the deployed group and 17 percent of the nondeployed 
group said they fell behind in paying bills; and 16 percent of the 
deployed group and 13 percent of the nondeployed group said they had 
bounced two or more checks.[Footnote 8]

The special pays and allowances that some servicemembers receive when 
deployed, particularly to dangerous locations, may be one reason for 
the similar findings for the deployed and nondeployed groups. 
Deployment-related special pays and allowances can increase 
servicemembers' total cash compensation by hundreds of dollars per 
month. Moreover, some or all income that servicemembers earn while 
serving in a combat zone is tax free.

Deployed Servicemembers Faced Problems Receiving Family Separation 
Allowance and Communicating with Creditors:

Deployed servicemembers experienced problems receiving their family's 
separation allowance promptly and communicating with creditors and 
families. Regarding family separation allowance, DOD pay data for 
January 2005 showed that almost 6,000 of 71,000 deployed servicemembers 
who have dependents did not receive their family separation allowance 
in a timely manner. The family separation allowance of $250 per month 
is designed to compensate servicemembers for extra expenses (e.g., 
childcare costs) that result when they are involuntarily separated from 
their families. Delays in obtaining this allowance could cause undue 
hardship for some families faced with such extra expenses. We 
previously reported similar findings for the administration of family 
separation allowance to Army Reserve soldiers and recommended that the 
Secretary of the Army, in conjunction with the DOD Comptroller, clarify 
and simplify procedures and forms for implementing the family 
separation allowance entitlement policy.[Footnote 9]

The services had different, sometimes confusing, procedures that 
servicemembers performed to obtain their family separation allowance. 
DOD officials suggested other factors to explain why some eligible 
servicemembers had not received their family separation allowance on a 
monthly basis. These factors included servicemembers might not have 
been aware of the benefit, they may not have filed the required 
eligibility form, or errors or delays might have occurred when their 
unit entered data into the pay system. In response to our 
recommendation that DOD take steps to correct the delayed payment of 
this allowance, DOD notified finance offices that they should emphasize 
the prompt processing of such transactions so that payment for the 
entitlement would begin within 30 days of deployment.

Servicemembers may also experience financial difficulties as a result 
of communication constraints while deployed. For example, individuals 
in the focus groups for our April 2005 report suggested that deployed 
junior enlisted personnel sometimes had less access to the Internet 
than did senior deployed personnel, making it difficult for the former 
to keep up with their bills. In addition, some Army servicemembers told 
us that they (1) could not call stateside toll-free numbers because the 
numbers were inaccessible from overseas or (2) incurred substantial 
costs--sometimes $1 per minute--to call stateside creditors. 
Furthermore, in our March 2004 testimony,[Footnote 10] we documented 
some of the problems associated with mail delivery to deployed troops.

Failure to avoid or promptly correct financial problems can result in 
negative consequences for servicemembers. These include increased debt 
for servicemembers, bad credit histories, and poor performance of their 
duties when distracted by financial problems. In our April 2005 report, 
we recommended and DOD partially concurred that DOD identify and 
implement steps to allow deployed servicemembers better communications 
with creditors. In their comments, DOD cited operational requirements 
as a reason that communications with creditors may not be appropriate. 
In addition, DOD noted that servicemembers should have extended absence 
plans for their personal finances to ensure that their obligations are 
covered.

Some Financial Products May Negatively Affect Servicemembers' Financial 
Conditions:

Some financial products may also negatively affect servicemembers' 
financial conditions. For example, although servicemembers already 
receive substantial, low-cost government-sponsored life insurance, we 
found that a small group of companies sold products that combine life 
insurance with a savings fund.[Footnote 11] These products promised 
high returns but included provisions that reduced the likelihood that 
military purchasers would benefit. These products usually provided a 
small amount of additional death benefits and had much higher premiums 
than those for the government insurance. These products also had 
provisions to use accumulated savings to pay the insurance premiums if 
the servicemembers stopped making payments. Moreover, servicemembers 
were being marketed a securities product, known as a mutual fund 
contractual plan, which features higher up-front sales charges than 
other mutual fund products and has largely disappeared from the 
civilian marketplace. For both types of products, the servicemembers 
who stopped making regular payments in the early years paid higher 
sales charges and likely received lower returns than if they had 
invested in other products.

Our November 2005 report made recommendations that included asking 
Congress to consider banning contractual plans and direct regulators to 
work cooperatively with DOD to develop appropriateness or suitability 
standards for financial products sold to servicemembers. We also 
recommended that regulators ensure that products being sold to 
servicemembers meet existing insurance requirements and that DOD and 
financial regulators take steps to improve information sharing between 
them. In response to the concerns over the products being marketed to 
servicemembers, securities and insurance regulators have begun 
cooperating with DOD to expand financial literacy.

DOD Has Taken Steps to Assist Servicemembers with Financial Concerns, 
but Some Assistance Is Underutilized:

DOD has taken a number of steps to assist servicemembers with their 
financial concerns, including providing military-sponsored PFM 
training, establishing a Financial Readiness Campaign, providing 
command financial specialists, and using Armed Forces Disciplinary 
Control Boards. Servicemembers can also access resources available 
outside of DOD (see fig. 2). However, servicemembers and DOD are not 
fully utilizing some of this assistance. In addition, DOD does not have 
an oversight framework to assess the effectiveness of the steps taken 
to assist servicemembers.

Figure 2: Financial Management Assistance and Training Available to 
Servicemembers:

[See PDF for image] 

Source: GAO analysis of DOD data; Image Art Explosion.

[End of figure]

Services Require Financial Management Training:

All four military services require PFM training for servicemembers, and 
the timing and location of the training varies by service. The Army 
begins this training at initial military, or basic, where soldiers 
receive 2 hours of PFM training. The training continues at Advanced 
Individual Training schools, where soldiers receive an additional 2 
hours of training and at the soldiers' first duty station, where they 
are to receive an additional 8 hours of PFM training. In contrast, Navy 
personnel receive 16 hours of PFM training during Advanced Individual 
Training; while, the Marine Corps and the Air Force begin training 
servicemembers on financial issues at their first duty stations.

Events, such as deployments or permanent changes of station, can 
trigger additional financial management training for servicemembers. 
The length of this additional training and the topics covered can vary 
by installation and command. Unit leadership also may refer a 
servicemember for financial management training or counseling if the 
command is aware of an individual's financial problems (e.g., abusing 
check-cashing privileges).

Despite these policies, some servicemembers have not received the 
required training, but the extent to which the training is not received 
is unknown because servicewide totals are not always collected. The 
Army, which is the only service that collected installation-level PFM 
data, estimated that about 82 percent of its junior enlisted soldiers 
completed PFM training in fiscal year 2003. Some senior Army officers 
at visited installations acknowledged the need to provide PFM training 
to junior enlisted servicemembers, but also noted that deployment 
schedules limited the time available to prepare soldiers for their 
warfighting mission (e.g., firing a weapon). While some services 
reported taking steps to improve their monitoring of PFM training 
completion--an important output--they still do not address the larger 
issue of training outcomes, such as whether PFM training helps 
servicemembers manage their finances better.[Footnote 12]

DOD's Financial Readiness Campaign Provides Resources Developed with 
Assistance from External Organizations:

DOD's Financial Readiness Campaign, which was launched in May 2003, 
supplements PFM programs offered by the individual services through Web-
based sources developed with assistance from external organizations. 
The Under Secretary of Defense for Personnel and Readiness stated that 
the department initiated the campaign to improve the financial 
management resources available to servicemembers and their families and 
to stimulate a culture that values financial health and savings. The 
campaign allows installation-level providers of PFM programs to access 
national programs and services developed by federal agencies and 
nonprofit organizations.

The primary tool of the Financial Readiness Campaign has been a Web 
site designed to assist PFM program managers in developing installation-
level campaigns to meet the financial management needs of their local 
military community. This Web site is linked to the campaign's 27 
partner organizations (e.g., federal agencies, Consumer Federation of 
America, and service relief/aid societies) that have pledged to support 
DOD in implementing the Financial Readiness Campaign. DOD's May 2004 
assessment of the campaign[Footnote 13] noted, however, that 
installation-level PFM staffs had made minimal use of the campaign's 
Web site. DOD campaign officials stated that it was early in 
implementation of campaign efforts and that they had been brainstorming 
ideas to repackage information given to PFM program managers, as well 
as servicemembers and their families.

Command Financial Specialists and PFM Program Staff Are Available for 
Financial Education and Counseling:

At the installation level, the military services provide command 
financial specialists, who are usually senior enlisted personnel 
trained by PFM program managers, to assist servicemembers with 
financial issues. These noncommissioned officers may perform the 
education and counseling role of the command financial specialist as a 
collateral or full-time duty. The Navy, Marine Corps, and Army use 
command financial specialists to provide unit assistance to 
servicemembers in financial difficulties. The Air Force does not use 
command financial specialists within the unit, but has the squadron 
First Sergeant provide first-level counseling.

Individual servicemembers who require counseling beyond the capability 
of the command financial specialists or First Sergeants in the Air 
Force can see the installation's PFM program manager or PFM staff. The 
PFM program manager is a professional staff member designated and 
trained to organize and execute financial planning and counseling 
programs for the military community. PFM program managers and staff 
offer individual financial counseling as well as group classes on 
financial issues.

Free Legal Assistance Offered, but Servicemembers Do Not Make Full Use 
of This Assistance:

DOD provides free legal assistance on contracts and other financial 
documents at installations, but servicemembers do not make full use 
this assistance. For example, legal assistance attorneys may review 
purchase contracts for large items such as homes and cars. In addition, 
the legal assistance attorneys offer classes on varying financial 
issues including powers of attorney, wills, and divorces. However, 
legal assistance attorneys at the 13 installations we visited for our 
April 2005 report stated that servicemembers rarely seek their 
assistance before entering into financial contracts for goods or 
services such as purchasing cars or lifetime film developing.

Instead, according to the attorneys, servicemembers are more likely to 
seek their assistance after encountering problems. For example, used 
car dealers offered low interest rates for financing a vehicle, but the 
contract stated that the interest rate could be converted to a higher 
rate later if the lender did not approve the loan. Servicemembers were 
later called to sign a new contract with a higher rate. By that time, 
some servicemembers found it difficult to terminate the transaction 
because their trade-in vehicles had been sold.

Legal assistance attorneys, as well as other personnel in our 
interviews and focus groups, noted reasons why servicemembers might not 
take greater advantage of the free legal assistance before entering 
into business agreements. They stated that junior enlisted 
servicemembers who want their purchases or loans immediately may not 
take the time to visit the attorney's office for such a review. 
Additionally, the legal assistance attorneys noted that some 
servicemembers feared information about their financial problems would 
get back to the command and limit their career progression.

Service Relief/Aid Societies Provide Financial Assistance:

Each service has a relief or aid society designed to provide financial 
assistance to servicemembers. The Army Emergency Relief Society, Navy- 
Marine Corps Relief Society, and the Air Force Aid Society are all 
private, nonprofit organizations. These societies provide counseling 
and education as well as financial relief through grants or no-interest 
loans to eligible servicemembers experiencing emergencies. Emergencies 
include funds needed to attend the funeral of a family member, repair a 
primary vehicle, or buy food. For example, in 2003, the Navy-Marine 
Corps Relief Society provided $26.6 million in interest-free loans and 
$4.8 million in grants to servicemembers for emergencies.

Some servicemembers in our focus groups stated that they would not use 
grants or no-interest loans from a service society because they take 
too long, are intrusive because the financial institution or relief/aid 
society requires in-depth financial information in the loan or grant 
application, or could be career limiting if the command found out the 
servicemembers were having financial problems. The Army Emergency 
Relief Society attempted to address the time and intrusiveness concerns 
with its test program, Commander's Referral, for active duty soldiers 
lacking funds to meet monthly obligations of $500 or less. After the 
commander approves the loans, the servicemembers can expect to receive 
funds quickly. However, noncommissioned officers in our individual 
interviews and focus groups said the program still did not address 
servicemembers' fears that revealing financial problems to the command 
could jeopardize their careers.

Non-DOD Resources May Be Used When Sevicemembers Need Additional 
Financial Support or Confidentiality:

Servicemembers may choose to use non-DOD resources if they do not want 
the command to be aware of their financial conditions or they need 
financial products or support not offered through DOD, the services, or 
the installation. In such cases, servicemembers may use other financial 
resources outside of DOD, which are available to the general public. 
These can include banks or credit unions for competitive rates on home 
or automobile loans, commercial Web sites for interest rate quotes on 
other consumer loans, consumer counseling for debt restructuring, and 
financial planners for advice on issues such as retirement planning.

Armed Forces Disciplinary Control Boards Can Help Curb Predatory 
Lending Practices:

DOD has used Armed Forces Disciplinary Control Boards to help curb 
predatory lending practices and minimize their effects. These boards 
and the recommendations that they make to an installation commander to 
place businesses off-limits to servicemembers can be effective tools 
for avoiding or correcting unfair practices. However, data gathered 
during some of our site visits to the various installations revealed 
few times when the boards were used to address predatory lending 
practices. For example, the board at Fort Drum, New York, had not met 
in about 4 years, and the board's director was unaware of two lawsuits 
filed by the New York Attorney General that involved Fort Drum 
servicemembers.

* The Attorney General settled a lawsuit in 2004 on behalf of 177 
plaintiffs--most of whom were Fort Drum servicemembers--involving a 
furniture store that had improperly garnished wages pursuant to 
unlawful agreements it had required customers to sign at the time of 
purchase.

* The Attorney General filed a lawsuit in 2004 involving catalog sales 
stores. He characterized the stores as payday-lending firms that 
charged excessive interest rates on loans disguised as payments toward 
catalog purchases. Some servicemembers and family members at Fort Drum 
fell prey to this practice. The Attorney General stated that he found 
it particularly troubling that two of the catalog stores were located 
near the Fort Drum gate.

In contrast to the Fort Drum situations, businesses near two other 
installations we visited changed their lending practices after boards 
recommended that commanders place or threaten to place the businesses 
on off-limits lists. Despite such successes, boards might not be used 
as a tool for dealing with predatory lenders for a variety of reasons. 
For example, as a result of high deployments, commanders may minimize 
some administrative duties, such as convening the boards, to use their 
personnel for other purposes. In addition, the boards may have little 
basis to recommend placing or threatening to place businesses on the 
list if the lenders operate within state laws. Furthermore, significant 
effort may be required to put businesses on off-limits lists. While 
recognizing these limitations, in our April 2005 report we nonetheless 
recommended that all Armed Forces Disciplinary Control Boards be 
required to meet twice a year. In responding to our recommendation, DOD 
indicated that it intended to establish a requirement for the boards to 
meet even more frequently--four times a year--and direct that 
businesses on the off-limits list for one service be off-limits for all 
services.

DOD Lacks Oversight Framework for Assessing and Monitoring PFM Program 
Effectiveness:

Although DOD has made resources available to assist servicemembers, it 
lacks the results-oriented, departmentwide data needed to assess the 
effectiveness of its PFM programs and provide necessary oversight. The 
November 2004 DOD instruction that provides guidance to the services on 
servicemembers' financial management does not address program 
evaluation or the reports that services should supply to DOD for its 
oversight role.[Footnote 14] In our 2003 report,[Footnote 15] we noted 
that an earlier draft of the instruction emphasized evaluating the 
programs and cited metrics such as the number of servicemembers with 
wages garnished. DOD officials said that these metrics were eliminated 
because the services did not want the additional reporting requirements.

The only DOD-wide evaluative data available for assessing the PFM 
programs and servicemembers' financial conditions were obtained from a 
general-purpose annual survey that focuses on the financial conditions 
of servicemembers as well as a range of other unrelated issues. The 
data were limited because (1) DOD policy officials for the PFM programs 
can only include a few financial-related items to this general purpose 
survey, (2) a response rate of 35 percent on a March 2003 active duty 
survey leads to questions about the generalizability of the findings, 
and (3) DOD has no means for confirming the self-reported information 
for survey items that ask about objective events such as filing for 
bankruptcy. Without an oversight framework requiring common evaluation 
DOD-wide and reporting relationships among DOD and the services, DOD 
and Congress do not have the visibility or oversight they need to 
assess the effectiveness of DOD's financial management training and 
assistance to servicemembers. In response to a recommendation in our 
April 2005 report for DOD to develop a DOD-wide oversight framework and 
formalize its oversight role for the PFM programs, the department 
indicated that it is pursuing management information that includes 
personal finances to support its implementation of the President's 
Management Agenda and to comply with the Government Performance Results 
Act.

Concluding Observations:

In summary, as mentioned earlier in my testimony, Congress and DOD have 
taken steps to decrease the likelihood that deployed and nondeployed 
servicemembers will experience financial problems. The prior increases 
in compensation, efforts to increase the financial literacy of 
servicemembers, and fuller utilization of the tools that DOD has 
provided for addressing the use of predatory lenders should positively 
affect the financial conditions of military personnel. While additional 
efforts are warranted to implement our recommendations on issues such 
as improving DOD's oversight framework for assessing its PFM programs, 
some of these efforts to address the personal financial conditions of 
servicemembers and correct past programmatic shortcomings are well 
underway. Sustaining this momentum will be key to minimizing the 
adverse effects that personal financial management problems can have on 
the servicemember, unit, and service.

Madam Chairwoman and Members of the Subcommittee, this concludes my 
prepared statement. I would be happy to respond to any questions you 
may have.

Staff Contact and Acknowledgments:

For further information regarding this testimony, please contact me at 
202-512-6304 or melvinv@gao.gov. Individuals making key contributions 
to this testimony include Jack E. Edwards, Assistant Director; Renee S. 
Brown; Marion A. Gatling; Cody Goebel; Barry Kirby; Marie A. Mak; Terry 
Richardson; and John Van Schaik.

[End of section]

Related GAO Products:

Financial Product Sales: Actions Needed to Protect Military Members. 
GAO-06-245T. Washington, D.C.: November 17, 2005.

Financial Product Sales: Actions Needed to Better Protect Military 
Members. GAO-06-23. Washington, D.C.: November 2, 2005.

Military Personnel: DOD Needs Better Controls over Supplemental Life 
Insurance Solicitation Policies Involving Servicemembers. GAO-05-696. 
Washington, D.C.: June 29, 2005.

Military Personnel: DOD's Comments on GAO's Report on More DOD Actions 
Needed to Address Servicemembers' Personal Financial Management Issues. 
GAO-05-638R. Washington D.C.: May 11, 2005.

Military Personnel: More DOD Actions Needed to Address Servicemembers' 
Personal Financial Management Issues. GAO-05-348. Washington, D.C.: 
April 26, 2005.

Military Personnel: DOD Tools for Curbing the Use and Effects of 
Predatory Lending Not Fully Utilized. GAO-05-349. Washington, D.C.: 
April 26, 2005.

Credit Reporting Literacy: Consumers Understood the Basics but Could 
Benefit from Targeted Educational Efforts. GAO-05-223. Washington, 
D.C.: March 16, 2005.

DOD Systems Modernization: Management of Integrated Military Human 
Capital Program Needs Additional Improvements. GAO-05-189. Washington, 
D.C.: February 11, 2005.

Highlights of a GAO Forum: The Federal Government's Role in Improving 
Financial Literacy. GAO-05-93SP. Washington, D.C.: November 15, 2004.

Military Personnel: DOD Needs More Data Before It Can Determine if 
Costly Changes to the Reserve Retirement System Are Warranted. GAO-04- 
1005. Washington, D.C.: September 15, 2004.

Military Pay: Army Reserve Soldiers Mobilized to Active Duty 
Experienced Significant Pay Problems. GAO-04-911. Washington, D. C.: 
August 20, 2004.

Military Pay: Army Reserve Soldiers Mobilized to Active Duty 
Experienced Significant Pay Problems. GAO-04-990T. Washington, D.C.: 
July 20, 2004.

Military Personnel: Survivor Benefits for Servicemembers and Federal, 
State, and City Government Employees. GAO-04-814. Washington, D.C.: 
July 15, 2004.

Military Personnel: DOD Has Not Implemented the High Deployment 
Allowance That Could Compensate Servicemembers Deployed Frequently for 
Short Periods. GAO-04-805. Washington, D.C.: June 25, 2004.

Military Personnel: Active Duty Compensation and Its Tax Treatment. GAO-
04-721R. Washington, D.C.: May 7, 2004.

Military Personnel: Observations Related to Reserve Compensation, 
Selective Reenlistment Bonuses, and Mail Delivery to Deployed Troops. 
GAO-04-582T. Washington, D.C.: March 24, 2004.

Military Personnel: Bankruptcy Filings among Active Duty Service 
Members. GAO-04-465R. Washington, D.C.: February 27, 2004.

Military Pay: Army National Guard Personnel Mobilized to Active Duty 
Experienced Significant Pay Problems. GAO-04-413T. Washington, D.C.: 
January 28, 2004.

Military Personnel: DOD Needs More Effective Controls to Better Assess 
the Progress of the Selective Reenlistment Bonus Program. GAO-04-86. 
Washington, D.C.: November 13, 2003.

Military Pay: Army National Guard Personnel Mobilized to Active Duty 
Experienced Significant Pay Problems. GAO-04-89. Washington, D.C.: 
November 13, 2003.

Military Personnel: DFAS Has Not Met All Information Technology 
Requirements for Its New Pay System. GAO-04-149R. Washington, D.C.: 
October 20, 2003.

Military Personnel: DOD Needs More Data to Address Financial and Health 
Care Issues Affecting Reservists. GAO-03-1004. Washington, D.C.: 
September 10, 2003.

Military Personnel: DOD Needs to Assess Certain Factors in Determining 
Whether Hazardous Duty Pay Is Warranted for Duty in the Polar Regions. 
GAO-03-554. Washington, D.C.: April 29, 2003.

Military Personnel: Management and Oversight of Selective Reenlistment 
Bonus Program Needs Improvement. GAO-03-149. Washington, D.C.: November 
25, 2002.

Military Personnel: Active Duty Benefits Reflect Changing Demographics, 
but Opportunities Exist to Improve. GAO-02-935. Washington, D.C.: 
September 18, 2002. 

(350867):

FOOTNOTES:

[1] See Department of Defense, Report on Personal and Family Financial 
Management Programs (Mar. 31, 2002) in response to a House Committee on 
Armed Services requirement in the National Defense Authorization Act 
for Fiscal Year 2002.

[2] See RAND, Assessing the Personal Financial Problems of Junior 
Enlisted Personnel, MR-1444-OSD (2002). This report defines junior 
enlisted as those enlisted servicemembers with fewer than 10 years of 
service. Our report defines junior enlisted as servicemembers in pay 
grades E1 to E4.

[3] The findings cited in this testimony were primarily taken from GAO, 
Military Personnel: More DOD Actions Needed to Address Servicemembers' 
Personal Financial Management Issues, GAO-05-348 (Washington, D.C.: 
Apr. 26, 2005); and GAO, Military Personnel: DOD's Tools for Curbing 
the Use and Effects of Predatory Lending Not Fully Utilized, GAO-05-349 
(Washington, D.C.: Apr. 26, 2005).

[4] See GAO, Highlights of a GAO Forum: The Federal Government's Role 
in Improving Financial Literacy, GAO-05-93SP (Washington, D.C.: Nov. 
15, 2004) for an overview of financial literacy issues. This report 
resulted from a July 28, 2004, forum that GAO hosted to develop 
recommendations on the role of the federal government in improving 
financial literacy. The forum's participants included a select group of 
individuals with expertise in financial literacy and education. They 
included representatives of federal and state agencies, the financial 
industry, nonprofit organizations, and academic institutions.

[5] Pub. L. No. 108-159, Title V, (2003).

[6] Department of Treasury, Internal Revenue Service, Armed Forces' Tax 
Guide: For Use in Preparing 2005 Returns, Publication 3, Cat. No. 
46072M. This publication noted that all military pay for the month is 
excluded from income when an enlisted servicemember, a warrant officer, 
or commissioned officer served in a combat zone during any part of a 
month or while hospitalized as a result of service in the combat zone. 
The amount of the exclusion for a commissioned officer (other than a 
warrant officer) is limited to the highest rate of enlisted pay, plus 
hostile fire/imminent danger pay for each month during any part of 
which an officer served in a combat zone or while hospitalized as a 
result of service there.

[7] DOD's March 2003 survey sample consisted of 34,929 individuals 
identified by stratified random sampling procedures. DOD reported that 
completed surveys were received from 10,828 respondents, which resulted 
in an overall weighted response rate for eligible servicemembers, 
corrected for nonproportional sampling of 35 percent.

[8] The sampling errors cited for fig. 1 also apply for these findings.

[9] See GAO, Military Pay: Army Reserve Soldiers Mobilized to Active 
Duty Experienced Significant Pay Problems, GAO-04-911 (Washington, 
D.C.: Aug. 20, 2004).

[10] See GAO, Military Personnel: Observations Related to Reserve 
Compensation, Selective Reenlistment Bonuses, and Mail Delivery to 
Deployed Troops, GAO-04-582T (Washington, D.C.: Mar. 24, 2004).

[11] See GAO, Financial Product Sales: Actions Needed to Protect 
Military Members, GAO-06-245T (Washington, D.C.: Nov. 17, 2005) and 
Financial Product Sales: Actions Needed to Better Protect Military 
Members, GAO-06-23 (Washington, D.C.: Nov. 2, 2005).

[12] The DOD Instruction 1342.27, dated November 2004, states that 
"within 3 months after arriving at the first permanent duty station, a 
servicemember shall demonstrate a basic understanding of pay and 
entitlements, banking and allotments, checkbook management, budgeting 
and saving (to include the thrift savings plan), insurance, credit 
management, car buying, permanent change of station moves . . . and 
information on obtaining counseling or assistance on financial 
matters." The instruction, however, does not specify how this is to be 
measured. It simply says that such an understanding means to comprehend 
the underlying principles of a subject and apply them to everyday life 
situations.

[13] Office of the Deputy Under Secretary of Defense (Military 
Community and Family Policy), Initial Assessment and Follow-on Plan for 
the Department of Defense Financial Readiness Campaign (May 27, 2004).

[14] DOD Instruction 1342.27, Personal Financial Management for Service 
Members (Nov. 12, 2004).

[15] See GAO, Military Personnel: DOD Needs More Data to Address 
Financial and Health Care Issues Affecting Reservists, GAO-03-1004 
(Washington, D.C.: Sept. 10, 2003). 

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