Pressure to Build Credit Is Putting Service Members and Their Units at Risk

Building your credit score. Getty Images
Building your credit score. Getty Images

"Three miles of stupid!"

A measurement of all the scripts for the upcoming fall TV shows laid end to end? Not quite.

In my years of working with thousands of businesses to get workers in better shape with their money, I've seen how debt and living paycheck to paycheck is threatening most American families. So when I started working with a retired Army colonel who coaches service members on smart personal finance, I was curious how that picture compared with what goes on in military circles.

I had an instinct the same problems were present, but I wanted to hear from a veteran and find out what could be done to help service and family members take control of their money.

Three miles of stupid is what Col. Eric E. Smith calls the area just outside most military bases. He says before new recruits can get started in the service, most will go through all kinds of pressure to do stupid things -- like build their credit, sign up for payday loans or finance cars.

A lot of those "opportunities" have set up shop right off base. And they're wreaking havoc in military families.

"That's the three miles of stupid," Smith says. "You see all of these pressures on young military members, many of whom are making money for the first time in their lives, to jump into debt because their pay is virtually guaranteed. So right outside the base, they have these payday loan places, banks pushing credit card offers, car dealerships and more."

It's a sad situation. And it has a devastating impact on the future finances of service members. As a veteran, Smith has seen firsthand the way personal money problems are undercutting military readiness and well-being. Today, he works with units across America to bring real financial wellness to service and family members and give them hope for better outcomes.

I sat down with him to find out the details and talk about action steps to help. Here's what I heard.

Terrible Trouble Just Below the Surface

Brian Hamilton: What do you think is the overall picture in the military today in terms of financial wellness and how it's impacting military readiness?

Eric Smith: I'd say the military is overlooking terrible problems that lurk just below the command's attention level. Service and family members are accumulating debt at a rate greater than any time in history and hurting financially. In fact, the Blue Star Families Military Family Lifestyle Survey found that, for the first time in 2018, financial stress was reported as the top stressor among military families.The same report showed that 62% of military families say they're feeling that kind of stress.

BH: What are leaders doing to help solve this problem?

ES: The leadership must create a healthy climate among the unit's members, but the current programs are falling way short. Existing programs may appear to meet these challenges, but they clearly do not adequately address the issue of debt elimination. And generally speaking, the installation is understaffed to handle the true challenge.

The Pressure to Build Up Credit Makes Things Worse

BH: I'm definitely not a fan of the payday loan shops and title loan places, because I've seen clearly how they cause problems for the average American family. Can you talk about how having those businesses outside of bases is harmful to service members?

ES: Well to begin with, service members are not learning to manage their money during childhood or in school. And unfortunately, these other groups with questionable intent are taking advantage of the service members' lack of training. Military members are arriving in operational military units with little or no understanding of personal finances.

As a result, the pressure to build up credit and get into debt is big, and it's causing untold problems not only for the individual service members but also for their units. The fact that many new recruits are enjoying real job security for the first time also comes into play here. They're not thinking as clearly as they might about their choices because the income is virtually guaranteed. The lenders start with this claim that you have to have a certain level of a credit score to do anything financially, which is a myth. Basically, anything you can do with a credit card, you can also do with a debit card without borrowing. Even a mortgage can be manually underwritten. But once the debt is in place, a lot of other problems and issues flow from that.

BH: Such as?

ES: Well, in addition to the normal pressures like deployment and sometimes family separations, which are hard enough, you throw in money problems. Now you're going to see some real trouble. For example, the 2019 Military Financial Readiness Survey by Harris Poll showed that more than a third of enlisted military members don't pay their bills on time and around half needed a second job to boost their income. And with service members who are in a lot of debt or who are facing a lot of financial distractions, we often see violence, a lack of focus, a loss of confidence from leadership, substance abuse and even instances of suicide. And it's been linked to marital problems such as divorce and family violence.

Financial Troubles Compromising Military Security

BH: There's a lot there in that statement, so I want to talk more about a couple of those issues. First, you mentioned a loss of confidence from leadership. Could you say more about how and why that happens?

ES: I'm talking about instances when service members are having their security clearances revoked. And for very good reason, because the sensitive nature of certain military jobs dictates the need for security classifications. The Department of Defense has passed new rules for security clearances, requiring service members to meet certain personal finance standards. These people are going to be more open to bribes in exchange for sharing military secrets. So we have people whose only focus should be protecting military information, but who are in enough personal financial trouble that they are actually compromised.

BH: I would imagine that has a big negative impact on morale and unit confidence. How does it affect logistics or even the financial wellness of the organization?

ES: The bottom line is that a revoked security clearance puts a huge strain on the organization, as the individual can no longer access specific military areas requiring clearances. This dilemma forces the command to operate with fewer personnel, while the workload requirements remain unchanged. In addition, the military must manage huge costs to retrain from lost service members while never recouping the loss of experience.

The Link With Suicide

BH: What about service member suicide? How do you see it relating to personal money problems?

ES: There is a link between the two. Suicide cases where money problems are either the primary or associated cause are increasing. For example, the timeframe of 2009 to 2011 saw a significant increase in such cases. Research from the Army National Guard and U.S. Army soldier populations showed that the relationship between financial trouble and suicide is strongly correlated, and suicides increase during financial crises. And although relationship issues are the main cause of service member suicides, we've seen a dramatic increase in suicides caused by financial stressors.

BH: That's a tragic situation. Do you believe there's potential to head these kinds of problems off with better guidance with personal finance?

ES: Absolutely! While fixing personal financial troubles doesn't guarantee a reduction in suicides, it is likely a step in the right direction.

Negative Impact on Families and Marriages

BH: You also mentioned relationships and money. Obviously, the two are closely related for everyone, and it's pretty well known that money problems are often the cause of divorce in the general population. Is that an issue with military marriages as well?

ES: There are numerous studies concluding that personal debt is a direct causal factor in divorce. Ramsey Solutions reported in 2018 that money fights are the second leading cause of divorce. From what I've seen, mounting debt and poor spending habits are causing marriage destruction in the military. It's one more area of personal wellness and military readiness that's definitely affected by a lack of healthy behavior with money.

In the 2018 Blue Star Families Military Family Lifestyle Survey, 62% of military families said they experienced stress related to their current financial condition.

BH: How does that study track with what you hear from service members?

ES: Military families are struggling financially, for sure. And they have all the same troubles that the general population deal with. Forty-six percent have insufficient or nonexistent funds to cover unexpected emergencies. Nearly half have difficulty making budgetary ends meet each month. Nearly two in five have one or more credit cards and regularly pay only the minimum payments on those. All told, we have many military families who are on the edge of a disaster. If they had an unforeseen financial emergency, the result could easily place an individual or family in a terrible position.

Moving Forward

BH: What would you say is the best way to address the problem overall?

ES: I always recommend a program that helps both individuals and families follow a clear path to better outcomes, including workable action steps leading to debt elimination and long-term wealth building. When that kind of change is happening in a unit, I believe it serves the commander's needs and enhances unit readiness.

BH: What are the key steps you'd like to see military leadership take to help service members and their families take control of their finances and enhance military readiness going forward?

ES: There's a clear need for real financial wellness, that can only happen through real behavior change. One key is helping service members see and take responsibility for their own financial futures. The main steps are removing debt, building wealth and, in the long run, planning for retirement and more charitable giving. The way that happens is through clear teaching and inspiring content.

BH: The payoff for that kind of behavior change is pretty clear from an individual service member's standpoint. What kinds of benefits happen for military commands?

ES: The military command benefits from its service and family members no longer burdening the unit leadership with financial challenges. Soldiers struggling with debt require time for counseling and maintenance, thus distracting the chain of command from training and making the organization more mission ready. Service members with financial burdens are also less likely to place total focus on tasks at hand, thus posing a safety risk to themselves and the unit. On the other hand, by reducing the individual's financial distractors, the unit will see safety improvements.

Financial Peace

One of the ways Smith works with service members to prepare them and their families for the future is Financial Peace Military Edition -- training materials he shares with units nationwide.

-- Brian Hamilton in vice president of SmartDollar, a financial wellness program from Ramsey Solutions.

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