These financial tips can help the military community prepare for tomorrow

With May being Military Appreciation Month, we’re sharing military findings from the 2020 Charles Schwab Financial Literacy Survey and offering financial tips to help everyone in the military community achieve their financial dreams.

When it comes to preparedness, the men and women of the United States Armed Forces are trained and equipped to handle any situation that comes their way on the battlefield. Because the element of surprise is as certain in everyday life as it is in combat, and because Schwab is focused on helping people plan for the strong, secure financial futures they deserve, we wanted to know if current and former military personnel feel just as prepared to anticipate and counter everyday financial surprises, and do they have a clear mission and plan to achieve financial freedom?

Members of the Military Have an Optimistic Outlook; However, There’s a Savings Disconnect

INFOGRAPHIC: Do you feel financially ready for an emergency?

The good news is that members of the military community feel financially ready for an emergency. Schwab’s survey found that 80% of current servicemembers and 65% of former military feel confident on this point. That’s great! But despite that optimism, the data indicates a disconnect between feeling prepared and actually being prepared:

  • Many enlisted servicemembers say they have struggled to afford basic living expenses like food (46%), rent (35%), transportation (27%) and utilities (29%), and some have struggled to handle emergencies like medical bills (34%).
  • Moreover, 46% of servicemembers say that an unexpected expense of up to $500 would cause financial hardship if they had to pay in full within 30 days, and 48% said that an expense of up to $2,000 would cause hardship.

Tip: Build and maintain an emergency fund

To relieve the stress of uncertain times, everyone – military and civilian – should aim to keep three to six months of essential living expenses easily accessible in case of an emergency. Save even more depending on your situation or if you might be anticipating a significant life change in the next year. If you’re just starting out, target $1,000-$2,000 and build from there.

To create a financial safety net:

  • Build up a cash reserve. Spend less than you earn and pay yourself first by making automatic monthly deposits to your emergency fund a part of your budget.
  • Reduce your consumer debt. Keep your spending in check and focus on bringing credit card balances down to zero and keeping them that way.
  • Have credit available. Maintain a good credit rating and, if you own a home, a home equity line of credit can potentially be used as a backup to your cash reserves. But remember, credit shouldn’t be your first line of defense.
  • Have adequate insurance. Sound insurance planning can help you avoid a financial catastrophe and may ultimately reduce the size of the emergency savings you need.
  • Keep your short-term money safe. Avoid putting money you believe you might need in the next three to five years in the stock market. Checking, savings, and money market accounts, and possibly short-term bonds or CDs can provide you with better liquidity and safety. (There may be a penalties for withdrawing money before a CD matures.)

Despite the financial challenges that some members of the military community face, there is optimism about their financial futures and they are taking steps to prepare.

  • 62% of servicemembers and 62% of former military say they can afford to pursue their dreams and interests.
  • 74% of servicemembers and 84% of former military would rather save money and make some lifestyle sacrifices now to have a more stable future.

Tip: Get started by evaluating your financial situation

Active duty, Reservist and Guard servicemembers can meet with a Personal Financial Counselor at no cost. Vets should consider working with a financial planner. They can help you create a budget, save for large purchases, look for ways to build or improve your credit, and plan for the future, including things like determining insurance needs and financially preparing for retirement, and they can refer you to additional resources. This is especially important if you’ve had a life change – like a marriage, divorce, children, buying a home, or deployment. Talking about money may feel uncomfortable, but the effect of not addressing financial issues can make it harder to reach your goals.

Tip: Plan for tomorrow, today

Many people postpone planning for retirement, assuming they have time to plan. Don’t fall into the trap. Even twenty years of service may not get you where you want to be for retirement and only about 20% of servicemembers stay in 20 years to qualify for a pension. Servicemembers should try to take full advantage of the Thrift Savings Plan even if they are eligible to receive a pension. Creating a financial plan and using online tools can help you understand how you’re tracking to reach your retirement goals. Lastly, make sure there are no gaps in your insurance needs.  Servicemembers should ensure that they have the right amounts of life and disability coverage in place once their military coverage (SGLI/TSGLI) ends.

The Path Forward: Advancing Financial Literacy In Our Communities

INFOGRAPHIC: What kind of high school course would you prioritize?

The lack of financial literacy in America is not lost on the majority of the military community. In fact, 48% of enlisted servicemembers and 68% of former military would prioritize a financial literacy high school course – even above career development and health and wellness courses.

I think this is important too! Financial literacy is the knowledge, skills, and behaviors that can build the right level of confidence to help individuals better manage their finances.  It’s an essential life skill to help navigate an increasingly complex financial landscape and critical to preparing for the unexpected – a fact painfully underscored by the COVID-19 pandemic. Start with the basics, ask questions and deepen your knowledge as you go. And remember, servicemembers and their families don’t have to go it alone.  Ask for help or a second opinion from trusted experts and professionals. Visit Schwab Moneywise for education, guidance and tools including spending trackersbudget plannerscredit card payoff calculators and much more.

About the 2020 Financial Literacy Survey

This survey was conducted online within the United States by The Harris Poll on behalf of Charles Schwab from June 4-8, 2020 among 2,046 U.S. adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated.