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 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, May 18, 2006

 

GAO-06-749T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 18, 2006

MILITARY PERSONNEL

DOD Has Taken Steps to Address 

Servicemembers’ Financial Needs, but 

Additional Effort Is Warranted 

Highlights of GAO-06-749T, a testimony 

before the Subcommittee on Oversight 

and Investigations, Committee on

Financial Services, House of 

Representatives 

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. 

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. 

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. 
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.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 

 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. 

Page 1 GAO-06-749T 
example, a 2002 study2

 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 20053

 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. 

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” 

Summary 

 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). 

Page 2 GAO-06-749T 
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 nointerest 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 

Page 3 GAO-06-749T 
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. 

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.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 longterm goals. 

Background 

One vehicle for promoting the financial literacy of Americans is the 

congressionally created Financial Literacy and Education Commission.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. 

 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). 

Page 4 GAO-06-749T 
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-onone 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 

Page 5 GAO-06-749T 
addition to these special pays, some or all income that active duty 

servicemembers earn in a combat zone is tax free.

6

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. 

Financial Conditions 

Similar for Deployed 

and Nondeployed 

Servicemembers, but 

Pay Administration 

and Communication 

Problems Existed for 

Deployed Members 

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.7

 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. 

Page 6 GAO-06-749T 
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 Surveya

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. 

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 

Page 7 GAO-06-749T 
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.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. Deploymentrelated 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.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 

 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).

Page 8 GAO-06-749T 
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,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.

 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). 

Page 9 GAO-06-749T 
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.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. 

Some Financial Products 

May Negatively Affect 

Servicemembers’ Financial 

Conditions 

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. 

 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). 

Page 10 GAO-06-749T 
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. 

DOD Has Taken Steps 

to Assist 

Servicemembers with 

Financial Concerns, 

but Some Assistance 

Is Underutilized 

Page 11 GAO-06-749T 
Figure 2: Financial Management Assistance and Training Available to Servicemembers 

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 

Page 12 GAO-06-749T 
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.12

 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. 

Page 13 GAO-06-749T 
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 campaign13 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. 

DOD’s Financial Readiness 

Campaign Provides 

Resources Developed with 

Assistance from External 

Organizations 

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 

 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). 

Page 14 GAO-06-749T 
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. 

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. 

Free Legal Assistance 

Offered, but 

Servicemembers Do Not 

Make Full Use of This 

Assistance 

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, NavyMarine 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 

Page 15 GAO-06-749T 
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. 

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. 

Non-DOD Resources May 

Be Used When 

Sevicemembers Need 

Additional Financial 

Support or Confidentiality 

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. 

Page 16 GAO-06-749T 
• 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. 

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 

DOD Lacks Oversight 

Framework for Assessing 

and Monitoring PFM 

Program Effectiveness 

Page 17 GAO-06-749T 
oversight role.14 In our 2003 report,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. 

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 

Concluding 

Observations 

 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). 

Page 18 GAO-06-749T 
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. 

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. 

Staff Contact and 

Acknowledgments 

Page 19 GAO-06-749T 
Page 20 GAO-06-749T 

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. GAO04-1005. 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. 

Page 21 GAO-06-749T 
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. 

Page 22 GAO-06-749T (350867) 
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