Debt And Our Armed Forces

One of the most difficult issues to tackle when it comes to credit card debt is the predicament that our soldiers are in.   Many are coming home from deployments to find that their debt is out of control.   There are people in the credit card and a payday loan industries who would advocate an extreme version Laissez Faire policies in which people are free to enter just about any agreement they want, regardless of the consequences.   They would argue that all people, including military personnel should be able to borrow money at APRs in the 100s.    Others would argue that interest rates set high above the market rate are inherently predatory.    These loans are offered by lenders against the most vulnerable in society with the clear intent is to trap them in a cycle of debt, squeezing all of their future income towards servicing the interest on a series of loans.

I entered into such a debate with an representative of the payday loan industry a couple of years ago on my personal blog.

Recently, the government decided that it was not in our national security interest for military personnel to take out loans with extremely high interest rates.   The first rule of espionage seems to be that people in financial trouble are the ones most vulnerable to selling secrets.    The epidemic of military personnel taking out payday loans ultimately became so bad that the government realized that it was actually a danger to national security to have so many people in the armed services trapped in a cycle of payday loans.    The interest rate that can be applied to military families was capped at an APR of a mere 36%.

Its Complicated

I recently came across this article about military families struggling with debt.  This article addresses a host of issues affecting military families including Pentagon expense reimbursement delays, relocation costs, and unemployment rates for veterans.    Clearly there is a huge financial burden being placed on young adults in our armed service.   They are enlisting, going through basic training, and being deployed at a time when they are just beginning to earn a significant wage for the first time in their lives.    Many of them are simply not equipped to deal with these responsibilities, especially at a time when they are going to war and financial management is not an immediate priority.

At the same time there is no doubt that military personnel are overspending.    There is a thrill to receiving a large signing bonus and a regular paycheck when one realizes all of the things he or she can now afford.   There is an even greater temptation to borrow money now that you are guaranteed a paycheck for the indefinite future.    Finally, there is a certain psychology of instant gratification that soldiers face when they are on leave for a brief period before being deployed back to a war zone.

The article singles out credit card usage as a growing problem.  Holly Petraeus, the wife of General David Patraeus, “points to increasingly aggressive credit card companies as an example of a problem she didn’t have to face as a young Army wife. “Credit cards were not an issue back then,” she says. “There was not the available plastic that there is now. Back in my younger days it was a cash or check society.'”

What Do We Owe Our Armed Forces?

Too many members of our armed forces find themselves in financial debt.    At the same time, we as a society owe them something for their service.   It would be tempting to take a paternalistic approach, banning all kinds of services from being offered to military personnel.    That is a draconian approach that should only be taken when absolutely necessary.   Yet payday loans and other types of predatory lending do call for such measures.    I believe that we should be offering members our armed forces and their families much greater resources to cope with their new financial burdens.   The military does have a support system, but it seems clear that it has been taxed beyond its limits.   We need to send reinforcements to bolster these efforts both because it is effecting the morale and readiness of our troops and because we owe it to them.