Service Members' Financial Problems Cost the Department of Defense Big Bucks

CONTACT:

Sandy Broughton

(540) 231-5915

email: [email protected]

SERVICE MEMBERS' FINANCIAL PROBLEMS COST THE DEPARTMENT OF DEFENSE BIG BUCKS

BLACKSBURG, January 13, 1998 -- A Virginia Tech researcher estimates that the Department of Defense (DOD) spends close to $1 billion annually on service members experiencing personal financial management difficulties. E. Thomas Garman, fellow and professor of consumer affairs and family financial management, calculates that the direct costs of assistance programs and indirect costs of lost productivity due to financial stresses costs the DOD between $677 and $957 million each year.

"The costs to the DOD, and by extension to the taxpayers, are huge, especially when you consider that a relatively small investment in personal finance education for service personnel could change many of the behaviors causing financial problems," Garman says. "What's even more alarming is that the DOD figures are a microcosm of what is happening in organizations in the private and non-profit sectors. This is the most glossed over and ignored worker issue today. By not acknowledging or recognizing how personal financial problems affect workers, and not dealing with the financial situations of their stressed workers, employers have left a vital cost component out of their bottom-line calculations."

The DOD cost estimate is based on data collected in a study by the Military Family Institute (MFI) in which Garman was a researcher. Assuming that 10 percent of service members experience financial difficulties, the MFI study concluded that the indirect costs of poor personal financial behaviors of US Navy service members is between $172 and $258 million annually in overall productivity costs, plus $36 million in direct costs. The DOD figures are extrapolated to 1.4 million service members from the Navy data on 430 thousand service members.

The DOD spends $117 million annually for the direct cost of administratively handling the consequences of service members financial mismanagement. Letters of Indebtedness (LOIs), bad checks, wage garnishments, bankruptcies, retention, and Navy-Marine Corps assistance are just a few of the situations in which the DOD must intervene.

Another $560 million annually goes for the indirect costs for lost productivity due to personal financial difficulties of service members, based on the 10 percent MFI estimate. "A more realistic estimate is that 15 percent of service members are facing personal financial management problems, since that would more clearly reflect what is happening with workers in the private sector," says Garman. An estimate of 15 percent would boost lost productivity costs to $840 million, giving a total range of direct plus indirect costs at $677 to $957 million annually.

"These calculations may, in fact, be extremely conservative," Garman says, "because there are indications that a much higher percentage of service members may be experiencing serious personal financial management difficulties." The MFI study found that for the Navy's 430 thousand members, 99 thousand wrote bad checks on the Navy Exchange System; 35 thousand Navy service members had their wages garnished; 43 percent reported problems paying monthly bills; and the Navy-Marine Corps Relief Society (NMCRS) provided $48 million in direct aid to 91 thousand financial assistance cases.

Personal finance employee education is emerging as one of the most critical issues facing employers today, due in large part to Garman's groundbreaking research on the subject. Garman and Virginia Tech colleague Irene E. Leech have published several studies on productivity losses caused by the poor personal financial behaviors of employees. Among their findings: Ö Approximately 15 percent of workers in the United States are experiencing stress from financial problems to the extent that their productivity on the job is negatively impacted. Ö Approximately 25 to 30 percent of workers report high work stress, and among the five major risk stressors (relationships, work, health, crime/violence, and personal finance), personal finance is rated by workers as the number one source of stress. Ö Over one-third of America's workforce report that money worries sometimes hamper job performance.

"Employees in a financial bind are simply not as productive, and that translates into bottom-line losses for the employer, whether it is the Department of Defense, a private corporation, or a non-profit organization," Garman said. The negative costs incurred by employers include lower job productivity, absenteeism, tardiness, loss of customers who seek better service, loss of revenue from sales not made, accidents and increased risk taking, healthcare costs for stress-related illnesses, disability and worker compensation claims, thefts from employers, time lost from the job dealing with personal finance matters, and employee turnover. Large employers, like DOD, also incur substantive direct administrative costs to deal with workers' personal financial management problems.

Garman advocates employers add a comprehensive "financial wellness" component to the services offered to employees--similar to programs many corporations now offer employees in substance abuse counseling and health and fitness programming. Such programs should include information and education in credit management, consumer education and personal finance to improve decision making; counseling and referral for difficult situations; and pre-retirement planning that increases worker participation and savings in pension plans. Garman estimates the return on investment in such a program is probably a 5 to 1 dollar ratio, as is the case in other employee assistance programming. "Offering financial wellness services for employees is a win-win situation for both employers and employees," says Garman.

Garman and Virginia Tech will host the second national conference on Personal Finance Employee Education (PFEE) in Roanoke, Virginia on June 9 - 10, 1998. Participants will have the opportunity to share research information, and resources that promote the best practices of personal finance and employee education in the private and non-profit sectors, with the twin goals of increasing employee productivity and the employer's bottom line. For program and registration details, see the PFEE web site at http:/www.chre.vt.edu/~/pfee/ or call 540-231-6677 or e-mail [email protected].

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