How interest rates work is not part of the basic military training manual, but maybe it should be.
Same goes for proper use of credit cards, why you should never accept a payday loan and what percentage of your paycheck to allot to a car loan.
While it’s tough enough for soldiers to learn how to fight America’s combat enemies abroad, they also need training on how to battle some unfriendly businesses – “predators” they call them – right here at home.
Recent studies commissioned by the U.S. Army paint an unflattering picture of economic hardships, many of them brought on by companies overanxious to profit from a soldier’s financial inexperience. The 10-year study found that 27 percent of service members had credit card debt of more than $10,000 as compared to 16 percent of civilians. The same study showed that 21 percent of servicemen used high-cost payday or auto title loans to deal with financial emergencies.
ProPublica, a non-profit news agency that does investigative journalism, detailed the predatory lending practices and outrageous car deals done by sleazy businesses that surround military bases.
“It is amazing what some businesses will do to take advantage of soldiers,” retired Army Captain Robert “Chip” Heidt said. “A lot of these guys are out on their own for the first time, they come into some money, either just for signing up or when they come home from deployment, and everybody starts grabbing for a piece. It’s really sad.”
Heidt just finished a 10-year career as an Army officer at bases in Alaska, Georgia and Kentucky. He graduated from the United States Military Academy at West Point and was an infantry company commander, in charge of approximately 150 men. He estimateds25 percent of the soldiers in his company had financial problems and, “that number grew to 50 percent if you’re just talking about the age group from 18 to 22,” he said.
“They would come home from an overseas deployment with a bunch of money in the bank and run down to the nearest car dealership to buy a new car,” Heidt continued. “I’d ask them: Do you really need a new car? Can you afford the payments? Or are you setting yourself up for some financial problems that are going to be counterproductive for what we’re trying to accomplish?”
Members of the military who fall into debt can lose security clearances and be overlooked for promotions. That is why most soldiers will not confess their financial failures. Heidt said that was an obvious issue so when he became a company commander, he met monthly, sometimes weekly, with his platoon leaders to discuss ways to educate soldiers on handling money.
“Nothing is worse than somebody being deployed halfway around the world and worried about whether there is enough money back home to buy food and diapers for the family,” Heidt said. “You can’t let a soldier’s mind be sidetracked liked that.”
Some of military financial problems are unavoidable because of the military lifestyle, which includes frequently being reassigned. That could mean having to sell a house during a depressed real estate market, spouses giving up employment and moving where the cost of living may be dramatically higher.
However, the more predictable obstacles to financial security can be avoided.
“Things like credit card debt, car loans and cell phone bills,” Heidt said. “Those are the three areas that ate up a lot of their paychecks, but you can teach people the right way to approach things and the value of saving a dollar.”
The Army routinely paid to bring in experts to educate soldiers on matters like budgeting, power of attorney, how to get auto loans, setting up automatic bill payments and investing. Nonetheless, there still will be times when outside influences overwhelm the most well-intentioned efforts.
A private walked into Heidt’s office one day asking for help with a car loan that a General would have trouble affording. The private bought a Cadillac Escalade, bragging about how he got it with no down payment.
He financed the car with a 20 percent loan that came out to $900 a month, or about half his monthly take-home pay.
“I couldn’t believe a car dealer would let a soldier walk out of his showroom with that kind of deal,” Heidt said. “This was a guy who didn’t know anything about credit scores, anything about car loans, anything about interest rates and clearly didn’t put together a budget to prove he could pay for it.
“It just emphasized how much we needed to educate our guys on financial matters.’’
Heidt begins his post-military career this fall and he’ll be doing a lot of the same things. He just accepted a job with U.S. Bank and while his position hasn’t been defined precisely yet, teaching young people the basics of finance is going to be a big part of it.
“Really, I’d like to be doing the same kind of thing I did in the military: sharing my knowledge of the financial world and opening doors for young people,” Heidt said. “For a lot of people – military and civilian – it’s just not a comfortable subject, but if you can educate them on how all these things work, it can make their life a lot more comfortable.”