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Debt in the Military a Security Concern!

By JLP | December 1, 2006

Get this:

Thousands of U.S. troops are being barred from overseas duty because they are so deep in debt they are considered security risks, according to an Associated Press review of military records.

You can read the article here.

The military is concerned that troops who are heavily in debt might sell military secrets. It’s pretty scary to think that debt is a national security concern.

The question of the day is:

What can we do about it? CAN we do anything about it?

According to the article,

The problem is attributed to a lack of financial smarts among recruits; reckless spending among those exhilarated to make it home alive from a tour of duty; and the profusion of “payday lenders” – businesses that allow military personnel to borrow against their next paycheck at extremely high interest rates.

The first thing that comes to my mind is to get rid of payday lenders. MAKE PAYDAY LENDING ILLEGAL! The second thing that comes to mind is EDUCATION. But, is education the answer? Of course a person must KNOW how to manage their money and everyone should be schooled in the basics of money management. However, they also must be taught to practice self-control. I think self-control (self-discipline) is the real key. Let’s face it:

There will ALWAYS be more WANTS than there are MEANS to fill those wants!

Obviously these lessons that people are missing out on must be taught and exemplified in the home by parents. In fact, I have read recently (sorry, I don’t know where I read it) that even high school personal finance classes aren’t doing the job of changing kids’ attitudes towards personal finance because the lessons come too late in life. So, parents who spend time showing kids how to budget their money when they are little (4-10 years old) are doing a lot more good than high school personal finance classes.

Read the article and leave your thoughts. I’m really interested in hearing what you have to say. I would really like to hear Dimes to Dollars’ thoughts on this matter since she is the wife of a military man.

Topics: Basics, Question of the Day Marathon | 15 Comments »


15 Responses to “Debt in the Military a Security Concern!”

  1. ciwood Says:
    December 1st, 2006 at 11:00 am

    When I was 18 (in 1967), Debt was controlled by the lender. I was not allowed to borrow more than I could pay back. The banks required no more than 25% of gross pay for a mortgage payment, there were no “liars loan” (loaning money w/o verifying the stated income), all mortgages were fixed rate 15,20,or 30 years, a 5-20 % downpayment was required to purchase a house (none of this zero down stuff), and credit cards (if you could get one) would not allow you to carry a balance from month to month.

    The lenders have abrogated there responsibility and turned debt into today’s drug of choice. Yes, we must provide education but people will never learn enough to outsmart the financial institutions in their neverending search for more exotic ways to hook users on their addictive product.

    The latest change to the bankruptcy laws is a farce allowing the financial companies free rein to pursue and punish consumers forever. Are heading back in time toward debtor’s prison?????

  2. MoneyFwd Says:
    December 1st, 2006 at 12:09 pm

    Interesting that you mention self-control since the military has always had this idea around it that it helps people gain self-control. Military schools put bad kids in line, and military service makes the parents an ok/troubled student proud.

    They should include financial discipline in basic training. These people are being taught so much already, and since the military is always advertising that they give you a future outside of the military as well, they should include financial training since that is important for everyone’s future.

  3. Lazy Man and Money Says:
    December 1st, 2006 at 1:37 pm

    Since my fiancee is in the military, I have a little insight into this.

    I have to say that there seems to be very, very little in the way of financial education in the military. My fiancee had almost all of her money in her Thrift Savings Plan (TSP), the equivalent of a 401k or 403b, in low-interest government bonds. So for the past 8 years she hasn’t been earning a whole lot there. Secondly, I told until last year or this year there was a cap of somewhere around 8% of your salary that you could contribute and of course, no matching. That meant most military couldn’t take full advantage of their TSP. So my fiancee is far behind saving for retirement. The only thing that saves me from being really irate about the situation is that there’s a pension. I know that pensions are disappearing in the corporate world, but I have a little more faith that the US Government can’t just legally get rid of this benefit without grandfathering everyone in.

    I don’t know if people can’t learn personal finance later in life. My fiancee just got through with Rich Dad, Poor Dad and she’s getting the idea of saving a lot more than she did before. I wonder if high school is really just a bad time to learn about it. It seems to me that saving money wouldn’t be considered cool. Also it’s such a cliquey culture that can be dictated by whose “ride is the most pimped.” It may sound like I’m talking about today, but even if you go back years, you have to have Nike pumps or the Swatch watch to be cool.

    I agree with MoneyFwd. Education is at least a huge part of the answer and should be taught in basic training for the military. Excluding the military subset though, it should be taught at some degree at all levels.

  4. Rob Says:
    December 1st, 2006 at 3:37 pm

    The idea that it is the lender’s fault when people borrow too much money is rediculous. The idea of being an adult is that you have the basic skills to take care of yourself in the world, and that includes managing your financial affairs. Instead people prefer to act and be treated like children where the government or the lender should decide what’s good for them. Of course, it is all about self control, and the more individuals “abrogate” the responsibility of taking care of themselves, the less and less self control they will have. They come to EXPECT that someone else is going to take care of them.

    If people had even a modicum of self control, payday lenders would disappear on their own. The nanny state does not need to make a legitimate business illegal to protect people from themselves.

  5. JLP Says:
    December 1st, 2006 at 4:03 pm

    Rob,

    I don’t think payday loan companies, although “legal,” are legitimate businesses.

    You are correct that MOST people get themselves into messes and expect someone to clean it up for them. I agree, that they have to accept responsibility for themselves and my post was in no way trying to say otherwise.

  6. MOMM Says:
    December 1st, 2006 at 4:50 pm

    My DH is in the military and to my knowledge (because money and income is something that is always talked about among the military, we all know what the other makes because it’s published for the world to know!) we owe the least amount compared to all of our friends. They all have huge credit card debt (ours is $5K, one friends was $55K), new cars every two years, bonus’ spent on toys, new tvs, etc.

    My DH and I talked about the payday loan stuff recently – something is going on w/ them and our state (SC) or maybe it’s the military that is here and the company, etc. Anyway, lots are using it and it’s getting them into trouble. Other then being a security risk and not being sent overseas, in extreme cases you can get kicked out.

  7. Lazy Man and Money Says:
    December 1st, 2006 at 4:53 pm

    The whole payday loan thing is like anything else that the US government would make illegal to protect the public and/or consumers in general.

    I really don’t know where they draw the line, but how different is it than being a drug dealer? Is it the drug dealer’s fault that people buy drugs? One could say that should be legal and people should have the skills to take care of their health and decide what good for them. What if I replace it with cigarette dealer or prosititute?

    My take is that at some point, the services do far more harm to people than they do good. That’s where I feel that regulation should step in.

  8. Rob Says:
    December 1st, 2006 at 4:57 pm

    I was really responding to ciwood, sorry that wasn’t clear.

    I disagree with you, though, about the payday loan business. Sure, it’s a product people should probably avoid, but people should avoid McDonald’s and cigarettes, too. It’s their choice. And there are plenty of businesses that take advantage of the financially unsophisticated. The ones I personally hate the most are car dealers who charge rediculous lease rates because people don’t understand how leasing works. But just becaue you think they charge too much doesn’t make them illegitimate. If they are charging more than a market rate then anybody is free to open a competing store right next to them that charges less. And since it is a multi-billion dollar, established business model, people would.

  9. Rob Says:
    December 1st, 2006 at 4:59 pm

    “I really don’t know where they draw the line, but how different is it than being a drug dealer? Is it the drug dealer’s fault that people buy drugs? One could say that should be legal and people should have the skills to take care of their health and decide what good for them. What if I replace it with cigarette dealer or prosititute?”

    Admittedly, I think all these things should be legal, too.

  10. JLP Says:
    December 1st, 2006 at 5:04 pm

    Lazy Man makes a good point:

    Where do we draw the line?

    Rob,

    I don’t think we can compare McDonalds with loan sharks. You go to McDonalds to eat. You don’t have to come back later to pay for your meal and if you don’t have the money they’ll charge you interest.

    People keep wondering why the rich get richer and the poor get poorer. This kind of stuff is why. It has very little to do with our tax structure and EVERYTHING to do with poor decision-making.

  11. dimes Says:
    December 1st, 2006 at 6:10 pm

    Golly gee, don’t make me pry the lid off this can of worms. I spend one day per week dealing with folks who get themselves in these sorts of situations. Honestly, there is no magic bullet. Apparently there is a personal finance brief during basic training, and recently most (maybe all) of the commands in Hampton Roads had payday lending awareness briefs, but the trap is so easy to fall into. Military pay fluctuates greatly from month to month (for example, since my husband left on deployment, his base pay has increased almost $1000 per month) which can make it hard for people to budget, and a lot of military personnel can experience life changed which affect their finances. There’s also a lot of pressure to keep up with the Joneses (ESPECIALLY among junior enlisted wives, who can usually ill-afford not to work), and that can submarine the finances, especially if the wives aren’t mindful of their husband’s fluctuations.
    Another problem is that the military encourages you to use debit cards instead of credit cards, which is TOTALLY moronic in my opinion, so kids never bother to keep a register. My own husband, who had to pass rigorous background checks because he works with his ship’s finances, never has much of an idea what’s in our bank account at any given time, to the point that I could probably slowly fund a secret account with him never noticing. He sent his sister a check that she didn’t cash for four months and he never noticed it was still outstanding.
    As for payday lenders, they’re cracking down on them in this area, but other types of lenders exist that are just as bad. I’ve heard that a few of the local payday schemes are actually funded by former admirals. What do you think of that?

  12. Generation X Finance » December 1st Friday Five Says:
    December 1st, 2006 at 6:21 pm

    [...] Five by Jeremy @ 5:29 pm | del.icio.us | Digg it | Furl | Netscape | reddit | StumbleUpon | Yahoo MyWeb| [...]

  13. Lazy Man and Money Says:
    December 1st, 2006 at 7:43 pm

    I think Rob’s point with McDonalds is that it might not be harmful to you financially, but many of the items that it serves are harmful to your health. Why not make all businesses that can be harmful to consumers illegal?

    I think the thing with McDonalds is that it does provide many healthy foods, which makes it not a preditory business (for lack of a better phrase). There are enough positive aspects of the company to the public. I don’t think the Payday loan companies offer enough positive aspects for me to say that about them.

    However, by this logic cigarettes manufactures should be banned. They probably would be too if they didn’t bring in a lot of tax dollars and have people addicted to the product. I don’t know what to say, there are a lot of inconsistancies here.

  14. AllFinancialMatters » Blog Archive » Blog of the Week - No. 63 Says:
    December 17th, 2006 at 3:38 pm

    [...] This week’s Blog of the Week honors go to Dimes to Dollars, a blog written by a twenty-something Navy wife stationed somewhere in the U. S. This is the first blog I have run across that specifically deals with finances for those in the military so her blog definitely has a nice niche to fill. She wrote an interesting post on how deployments affect the finances of those in the military, that I found enlightening. She also has a two-part series on predatory lending and the military (Part 1 and Part 2) something I blogged about a month or so ago. [...]

  15. Fedup Says:
    December 28th, 2006 at 1:19 pm

    The problem goes deeper than much of the speculation here.

    As I see it, given the military’s defined benefit pension, military personnel now receive salaries equal or above the private sector. They also receive a 100% accurate allowance for local housing.

    So military debtors should not be more prevalent than irresponsible civilians. If they are – other questions need to be asked.

    All of this is not coming from a vacuum. This week a military family member will commit to a house which is 7.8 times his annual income. Despite the warnings, despite free legal aid, despite free financial training.

    It is a great bafflement, and it makes me understand some of those ancient muslim prohibitions against interest. They may have been more savy than we give them credit…understanding that if you allow lenders to enslave – they will. And the people will line up to become their slaves.

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