One hundred years ago, millions of brave young men set off from their homes to fight in the Great War.
Millions of them never came back, and today, as conflicts still rage in different places across the globe, nothing has changed: Many young American men (and women) who have been sent to places like Iraq or Afghanistan may never return.
That’s why most military personnel have a fatalistic, devil-may-care approach to life. Not knowing what can happen to them if they’re sent off to a conflict zone, there’s a tendency to live for the moment and “to blow up your entire paycheck,” says Rob Aeschbach, a former U.S. Marine and financial planner in Norfolk, Virginia. (And yes, we know that Marines don't believe there's such a thing as a 'former' or 'ex-Marine,' only a Marine who's now wearing a different uniform.)
This can prove disastrous in the long run, including financially, for those service members.
Particularly since many people join the services when they’re very young, and even if they serve their full term of 20 years, “we’re all living a lot longer than we did and that requires better financial planning from the outset,” Aeschbach says.
Unfortunately, though, many youngsters in the military are not doing what they need to do to plan for the future. Aeschbach—who’s about to launch his own fee-only advisory firm, The Military Financial Planner—volunteers at the Navy and Marine Corps Relief Society. “Every time I’m there,” he says, “I come across soldiers and sailors who have no money to pay their electricity bills, or who don’t have money for food or gas—and that’s purely because they haven’t budgeted properly or planned for the future.”
But for many young service members, basic financial planning concepts like saving and budgeting are completely alien. They’ve never received any kind of financial education, says Skip Fleming, another former service member and financial planner with Lodestar Financial Planning in Colorado Springs, and it’s only recently that the Department of Defense has realized the depth of that knowledge lacuna and how detrimental it is to the financial lives of Army and Navy personnel.
“The services are now doing a great job of going out to the financial planning community and hiring experts to teach active service members the basics of financial planning,” Fleming says. “They’re taking financial education very seriously and have gone to professional organizations including the FPA [Financial Planning Association] and asked for advisors to come in and provide educational services on a part-time basis. Financial education is particularly important for the younger folks, those who are just starting out, as they tend to be the ones facing the most financial challenges.”
Advisors like Linda Jacob, a CFP and an accredited financial counselor, are part of this effort.
Jacob, whose husband was stationed in Wiesbaden, Germany for a number of years, began working in the Army community office there as a financial readiness officer, helping service members with everything from “being able to balance their checkbooks to reading and understanding their leave and earning statements.”
Now back in the U.S., she’s contracted out to teach financial planning courses on military bases and naval ships.
Her courses are proving extremely popular, she says, and “I am willing to answer any question people have, because no question is irrelevant.”
With increased support from different quarters, it’s become easier for active service members to be more prudent about financial planning. And according to Doug Nordman, a Marine who retired early and authors the very popular blog www.the-military-guide-com, the same principles that apply to most people apply to military personnel as well.
“Track your spending so that you know where the money is going," Nordman says, "spend your money on the things that bring you value and be willing to work the extra months/years for them and save as much as you can for your financial independence.”
Financial advisors can also help military personnel achieve their financial goals, Nordman believes, but first, they need to be completely up to speed with the system, including understanding the details of service compensation (military pay varies greatly depending upon where a service member is stationed, and can sometimes even be tax free) as well as the numerous benefits that service members can use, including health insurance plans and the military’s Thrift Savings Plan.
“Financial advisors typically don't appreciate how much tax-free income is paid to U.S. service members and they don't emphasize the value of the military's Thrift Savings Plan,” Nordman says. “They also don’t typically consider that [members of the] military can afford to invest a little more aggressively while they're in uniform, or if they're receiving a military pension.”
Military human capital, Nordman says, “is very much like a bond for its steady income and other untaxed benefits.”
Because of that, service members can generally invest more aggressively in equities instead of bonds. Retirees have a pension that's indexed to inflation, as well as cheap Tricare health insurance, so they can also afford to invest more aggressively.
“Of course everyone still has to come up with an asset allocation that helps them sleep comfortably at night, but an advisor should recognize that the military paycheck, or a military pension, gives them much more flexibility to tilt toward a heavier equity asset allocation,” Nordman says.
See ThinkAdvisor's latest installment Honoring Advisors Who Serve(d): July 4th, 2014.