The estimated cost of this report to the Department of Defense in Fiscal Years 2019-2020 is approximately $281,000. This includes $250,000 in expenses and $31,000 in DoD labor.

Department of Defense Annual Report on the Financial Literacy and Preparedness of Members of the Armed Forces

Results from the 2018 Status of Forces Survey

January 2020

Office of the Under Secretary of Defense for Personnel and Readiness

Table of Contents Executive Summary ............................................................................................................ 1

Introduction ......................................................................................................................... 2

Overview of Survey Results ................................................................................................ 3

Army ................................................................................................................................... 17

Marine Corps ....................................................................................................................... 20

Navy .................................................................................................................................... 22

Air Force ............................................................................................................................. 26

DoD Financial Readiness Efforts ....................................................................................... 29

Conclusion .......................................................................................................................... 31

Figure 1 – Comfortable Financial Condition, Active Duty ...................................................... 4

Figure 2 – Comfortable Financial Condition, Reserve Component ......................................... 5

Figure 3 – Distribution of Financial Well-Being Scale Scores ................................................. 13

Table 1 – Emergency Savings ................................................................................................... 8

Table 2 – Most Common Financial Management Challenges, Active Duty ............................ 10

Table 3 – Most Common Financial Management Challenges, Reserve Component ............... 10

Table 4 – Use of Financial Products and Services .................................................................... 11

Table 5 – Financial Knowledge, Military and U.S. Populations .............................................. 15

Figures and Tables

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EXECUTIVE SUMMARY

The Department of Defense (DoD) submits this annual report on the financial literacy and preparedness of members of the Armed Forces to the Committees on Armed Services of the Senate and House of Representatives pursuant to section 992(d) of title 10, United States Code (U.S.C.). This report includes results from the 2018 Status of Forces Survey (SOFS) related to financial literacy and preparedness as required by law. The report also includes an overview of DoD efforts in support of financial readiness. Key findings from the 2018 SOFS include:

• The overall financial condition of Service members has generally improved over time,

although 2018 results among active duty (AD) are slightly lower than recent years.

• Service members continue to exhibit higher levels of financial well-being than the U.S. population overall using a common metric developed by the Consumer Financial Protection Bureau (CFPB). They also exhibited comparable or better levels of financial knowledge compared to the U.S. population based on common questions used in a number of surveys.

• The vast majority of Service members reported their financial situation was better than or

the same compared to 12 months ago. • Service members routinely used a variety of financial management activities, particularly

to manage their short-term finances such as evaluating purchasing/spending behavior and making short-term financial plans.

• Most Service members indicated having a savings habit of some kind as well as

emergency savings, although only about one-third have emergency savings to cover at least 3 months of expenses.

• Service members were pursuing a variety of financial goals, and more may be achieving

these goals than in the past. • Few Service members reported experiencing certain issues indicating a financial

management challenge and few used potentially high-cost credit products or services to cover their expenses.

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INTRODUCTION As part of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016, Congress amended section 992 of title 10, U.S.C., to add subpart(d), requiring DoD to conduct an annual survey of the “status of the financial literacy and preparedness of members of the armed forces.” The survey results are to be used by the “Secretaries concerned as a benchmark to evaluate and update training” and are to be “submitted to the Committees on Armed Services of the Senate and House of Representatives.” Financial literacy and preparedness contribute to a Service member’s financial readiness. The Department defines financial readiness as a state in which successful management of personal financial responsibilities supports a Service member’s ability to perform their wartime responsibilities.1 To support Service members in their continuous effort to maintain their financial readiness, the Department provides financial education and requires learning objective-based financial readiness common military training at the various personal and professional life events described in section 992. While specific measures of financial literacy and preparedness are dependent on a number of personal circumstances and thus vary by individual, the annual SOFS provides the Department with a perspective of the overall financial condition of Service members. Through both subjective and objective questions, the survey allows the DoD to identify financial behaviors and potential financial challenges among the military. This allows the DoD and the Military Service, in particular, to identify educational needs, consistent with the mandate from the statute that the survey be used to “evaluate and update training.” In addition to questions on financial condition and behaviors, the SOFS includes CFPB’s financial well-being scale. With the scale, DoD is able to leverage CFPB’s research on financial well-being, produce a common measure of financial well-being that is comparable across populations and time, and better understand how the military population compares to the national population which the CFPB studied extensively. The SOFS also includes 12 knowledge-based questions intended to assess the military population’s understanding of a variety of financial concepts, some general (e.g. interest, inflation) and others specific to the military (e.g., military retirement compensation). Because some of these questions have been included on other major national surveys, such as the Bureau of Labor Statistics’ National Longitudinal Study of Youth 1979, the Federal Reserve Board’s Survey of Household Economics and Decisionmaking (SHED), and the FINRA Investor Education Foundation’s National Financial Capability Study (NFCS), DoD can better understand how the financial knowledge of the military compares with the civilian population.2

1 Directive-Type Memorandum 09-119, “Financial Readiness Common Military Training,” August 13, 2019. 2 These and other non-DoD surveys referenced in this report are scientifically designed to be representative of the U.S. population, just as the SOFS is designed to be representative of the military population.

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OVERVIEW OF SURVEY RESULTS This section provides an overview of 2018 SOFS results related to financial literacy and preparedness. To better understand differences in distinct military populations, the DoD Office of People Analytics (OPA) administers two separate surveys annually: the Status of Forces of Active-Duty Members (SOFS-A) and the Status of Forces of Reserve Component Members (SOFS-R). The 2018 SOFS-R was administered between July and October 2018 to a population of 108,000 Reserve Component (RC) Service members with a weighted response rate of 13 percent. The 2018 SOFS-A was administered between December 2018 and February 2019 to a population of 122,000 AD Service members with a weighted response rate of 15 percent. OPA uses an industry-standard process employed by U.S. Federal agencies such as the Bureau of the Census and the Bureau of Labor Statistics to produce scientific estimates that are representative of their respective populations. Because of the survey administration schedule and time required to compile and analyze results, the report includes results from the previous year. The DoD can observe changes in the financial literacy and preparedness of Service members over time since most questions were included on previous surveys, although it is important to note that the military is a continuously-changing population; for example, nearly 188,000 AD Service members separated from service in FY 2018. Statistical analysis also allows comparisons between groups, such as by Military Service or paygrade group (e.g., E1-E4, E5-E9). To provide this analysis, OPA conducted statistical tests to identify statistically-significant differences between groups. Statistical significance indicates the probability the observed difference is due to chance is less than five percent. This analysis allows DoD to identify different financial conditions or behaviors of certain populations, or how certain characteristics may relate to financial literacy and preparedness. Overall Financial Condition The majority of Service members indicated a comfortable financial condition, with 67 percent reporting they were “very comfortable and secure” or “able to make ends meet without much difficulty.” Figures 1 and 2 show the percent of members by paygrade group reporting a comfortable financial condition over time. While the most recent results show a slight decline in the percent of AD Service members reporting a comfortable financial condition, results over the years generally reflect an improving condition, particularly among junior enlisted and RC Service members.3 Since the SOFS identifies respondents by a number of characteristics, the DoD can better understand the financial condition of certain population groups and how they compare to others. For example, 72 percent of AD Service members at overseas duty stations indicated a comfortable financial condition, compared to 66 percent of those assigned to U.S. locations. Additionally, junior enlisted were slightly more likely to indicate an uncomfortable financial condition (11 percent) compared to other paygrades. There was no difference between AD

3 This report defines junior enlisted as paygrades E1 to E4, senior enlisted E5 to E9, junior officers O1 to O3, and senior officers O4 to O6.

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Service members who had been deployed in the past 2 years compared to those who had not. In contrast, RC Service members who had deployed were significantly more likely to indicate they were financially comfortable – 76 percent, compared to 66 percent of those who were not deployed. Additionally, those serving in full-time RC positions, such as Active Guard Reserve and Full-Time Support positions, were more likely to be comfortable (75 percent). The SOFS-R also characterizes RC Service members by their reported civilian employment status: those employed full-time were more likely to be financially comfortable (70 percent), while those employed part-time were more likely to be financially uncomfortable (19 percent).

Figure 1: Comfortable Financial Condition, Active Duty

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Figure 2: Comfortable Financial Condition, Reserve Component

The SOFS also asks Service members to compare their current financial condition to 12 months ago. Eighty-three percent of AD Service members indicated their financial condition was better or the same, with junior enlisted and junior officers more likely to report an improved condition than other paygrades. AD Service members were most likely to indicate better financial management (66 percent), change related to employment (58 percent), or reduction in debt (56 percent) as the reason for improvement. Senior enlisted were more likely than others to indicate their financial condition was worse (18 percent). AD Service members most commonly indicated increased debt as the reason. Similarly, 85 percent of RC Service members reported a better or similar financial condition, with a change related to employment (69 percent), better financial management (67 percent), and reduction in debt (59 percent) similarly the most common reasons. The 15 percent of RC Service members who reported their financial condition worsened also indicated increased debt and change related to employment as the most common reasons. Financial Management Activities Service members were asked to express their comfort performing various financial management activities, and whether or not they regularly perform those activities. The majority indicated they were comfortable performing all of the financial management activities on the survey, including both short- and long-term activities. Responses varied little between AD and RC Service members – both most commonly indicated comfort understanding their leave and earnings statement, evaluating their purchasing/spending behavior, making short-term financial plans, and understanding and monitoring their credit score. Of the activities included on the survey, Service

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members were least likely to be comfortable understanding the Survivor Benefit Plan (SBP). Fifty-two percent of AD and 56 percent of RC Service members reported they were comfortable understanding SBP, though SBP only requires a decision to opt-in for eligible members at retirement. A vast majority of Service members also reported routinely using most of the activities to manage their finances. They were most likely to perform activities related to their current or short-term financial situation, such as evaluating purchasing/spending behavior (86 percent AD; 85 percent RC) or making short-term financial plans (82 percent AD; 83 percent RC). Fewer, but a still significant number, performed more long-term activities such as making or monitoring long-term financial plans (71 percent AD; 74 percent RC). Activities related to retirement savings appear to vary by Component: 72 percent of AD Service members indicated they contribute to the Thrift Savings Plan (TSP), compared to 58 percent of RC Service members. In comparison, 57 percent of AD and 62 percent of RC Service members indicated they contribute to investments or retirement plans other than TSP. These differences are likely a function of different retirement plans available to Service members. RC Service members likely have retirement savings options available in their civilian employment and may be less inclined to contribute to TSP if they are not under the Blended Retirement System (BRS) and eligible for matching DoD contributions. Since 2018, as new Service members enter the military under the BRS they receive training to understand the aspects of their retirement system, including TSP. This empowers new Service members to make decisions related to their TSP account, including contribution rate and fund allocation, immediately. More Service members may be using positive financial management activities than the U.S. public. In the SOFS, 71 percent of AD and 73 percent of RC Service members reported following a monthly budget or spending plan. This is substantially better than the 48 percent of Americans who reported using a budget to track their spending, according to the 2018 U.S. Financial Health Pulse (FHP) conducted by the Financial Health Network.4 Across most activities, junior enlisted were less likely to report using them routinely than average. The largest gap was making and monitoring long-term financial plans, which 60 percent of AD and 61 percent of RC junior enlisted reported doing routinely. RC junior enlisted were also significantly less likely to report contributing to investment or retirement plans: 47 percent contributed to TSP while 49 percent contributed to other investments or plans. These results, as well as other data from this and past surveys, illustrate that younger Service members may be more focused on their short-term financial needs. Service members were also asked to identify from which sources they receive information, training, or counseling related to managing their finances. Above all, Service members reported obtaining information on their own (63 percent AD; 66 percent RC), such as through internet research. The majority (55 percent AD; 59 percent RC) also reported primarily obtaining information from family, friends, or peers. Among AD Service members, military resources were also primary among sources of information, including from a military class or seminar (53 percent); online training (46 percent); family readiness personnel (44 percent); and a financial 4 “U.S. Financial Health Pulse: 2018 Baseline Survey Results,” Financial Health Network (May 2019).

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specialist within the military unit (34 percent). Other primary sources used by RC Service members differed slightly, likely due to their different service activity and geographic diversity: 50 percent obtained information from a military class or seminar; 40 percent from an off-base financial institution; 39 percent from a civilian school; and 37 percent from family readiness personnel. Financial Goals Service members report setting a variety of financial goals reflecting both short- and long-term objectives. Service members indicated if something was a current or future goal, if it was not a goal, or if they had met the goal. The results provide insights into the financial priorities of Service members and how they may be obligating their income. The most common goals among members of both Components were saving for retirement (85 percent AD; 83 percent RC), saving for a safety net/emergency fund (71 percent AD; 74 percent RC), being free of debt except mortgage (70 percent AD; 71 percent RC), saving for a vacation (66 percent AD; 67 percent RC), and being free of credit card debt (63 percent AD; 60 percent RC). Service members were less likely to indicate saving for retirement or a safety net/emergency fund as a financial goal compared to past results, though this decline is associated with an increase in the number reporting they had met these goals. For example, there was a 10 percent increase in the number of AD Service members who reported having achieved the goal of saving for a safety net/emergency fund, indicating that more may have a level of emergency savings they are comfortable with for their circumstances. Similar to their financial management activities, junior enlisted were more likely to indicate more immediate financial goals than other paygrades. These included buying a vehicle (48 percent AD; 53 percent RC) or home (70 percent AD; 71 percent RC). In addition, junior enlisted were generally more likely to have education-related goals, including saving or paying for their own education, or that of their spouse or children. Savings The survey asks Service members to describe their saving or investment habits, with responses of regularly putting money aside, saving whatever is left, spending as much as their income, or spending more than their income. Overall, the vast majority, including 82 percent of AD and 80 percent of RC Service members, reported a savings habit of some kind. This includes nearly half (47 percent AD; 44 percent RC) who indicated they save regularly each month, and slightly more than one-third (35 percent AD; 36 percent RC) who saved whatever is left but have no regular plan. Fifteen percent of AD and 16 percent of RC Service members reported typically spending equal to their income. AD senior enlisted (18 percent) and RC junior enlisted (19 percent) were more likely to spend as much as their income. A small portion of Service members (three percent AD; four percent RC) reported being unable to save because they spend more than their income. While this is significantly lower than the 16 percent of U.S. adults who report spending more than their income according to the 2018 FHP, it

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indicates a potential financial readiness threat. Such habits, whether the result of habitually living beyond one’s means or an unexpected expense, can result in risky financial behaviors such as accumulating credit card debt or using high-cost credit products to cover expenses. Some of these behaviors are discussed later in the report. The survey also asks members about any emergency savings they may have. Emergency savings can serve as an important safeguard to financial readiness, as it allows an individual to handle unexpected expenses, such as a home or auto repair, or a sudden change to income, such as job loss. The Pew Charitable Trusts found that 60 percent of households experienced a financial shock in the past 12 months, while the average cost of the most expensive was $2,000.5 Emergency savings can allow an individual to cover such an expense without disruption to their everyday financial responsibilities or having to rely on high-cost financial practices or products. Additionally, Service members with emergency or other savings may be better positioned to ease their eventual transition from military service by providing a financial buffer while entering the next phase of their professional lives. Table 1 shows Service members’ reported emergency savings in relation to their average monthly expenses. Service members were roughly equally split between having had 3 to 6 months, 1 to 3 months, and less than 1 month in emergency savings. This included 16 percent of AD and 19 percent of RC Service members who reported no emergency savings. Junior enlisted were more likely to report not having an emergency savings fund (25 percent AD; 31 percent RC).

Table 1: Emergency Savings Emergency Savings Active Duty Reserve Component

None 16% 19% Less than 1 month 18% 18% 1 to 3 months 33% 31% 3 to 6 months 18% 17% More than 6 months 14% 15%

AD Service members are more protected from sudden job loss and large medical expenses than their civilian counterparts. They may also be eligible for support from military aid societies in the event of an unexpected expense. These non-profit organizations, typically located directly on military installations, provide financial assistance to eligible Service members in the form of interest-free loans or grants. This assistance is a valuable resource to help Service members’ maintain their financial readiness, as it provides an alternative to high-cost practices, such as carrying a balance on a credit card or using a pawn or payday loan. Military aid societies provide particularly critical support during natural disasters. For example, Navy-Marine Corps Relief Society provided $785,000 in assistance to more than 1,300 individuals related to Hurricane Dorian in September 2019. This assistance helped Service members and their families prepare their homes, evacuate, and begin the recovery process without having to resort to high-cost credit products.

5 “The Role of Emergency Savings in Family Financial Security,” Pew Charitable Trusts (October 2015).

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Credit Card Usage Service members were asked to describe how they routinely pay their credit card debt. Among AD Service members, 86 percent reported using credit cards, while 14 percent did not. Of those who reported using credit cards, 37 percent indicated they paid the balance in full, 52 percent paid more than the minimum but not the full balance, and 12 percent paid the minimum payment. In comparison, 82 percent of RC Service members used credit cards, while 18 percent did not. Among those who did, 40 percent reported paying the balance in full each month, 51 percent paid more than the minimum but not the full balance, and 10 percent paid the minimum payment. Junior enlisted (26 percent AD; 31 percent RC) were more likely to report not using credit cards. Nine percent of both AD and RC Service members reported failing to make a minimum monthly credit card payment in the past 12 months. AD senior enlisted were more likely to have missed a payment (11 percent). In comparison, the Federal Reserve Board’s 2016 Survey of Consumer Finances found that 13.5 percent of Americans were late on a credit card payment in the past 12 months.6 While this indicates Service members may be less likely to miss payments altogether, comparisons with other surveys indicate they may be more likely to carry credit card debt month-to-month than the average American. For example, the 2018 SHED found that 47 percent of those with credit cards paid the balance in full each month. Financial Management Challenges The survey asks Service members whether they experienced any of 17 issues in the past 12 months that may indicate a financial management challenge. These range from potentially one-time occurrences, such as failing to make a credit card payment, to those indicative of more pervasive financial management issues, such as falling behind on rent or mortgage or filing for bankruptcy. Overall, few Service members experienced the items listed. In addition, DoD has generally observed a decline in the prevalence of such issues over the years, although some issues were more common in 2018 among AD Service members than recent years. Tables 2 and 3 show the most commonly selected issues in 2018 with select past results when available.7 The proportion of AD Service members reporting having to pay overdraft fees two or more times, borrowing money from family and/or friends to pay bills, and failing to make a monthly/minimum credit card payment was higher in 2018 than 2017. Others showing a higher percentage (such as “pressured to pay bills by stores, creditors, or bill collectors”) were not statistically significant in 2017 or 2018. It is important to note that the two most common issues – providing unplanned financial support to a family member who did not live with you and personal relationship problems with your partner due to finances – may not be indicative of a financial management problem at all. While they can cause stress that may negatively impact financial readiness, they may be experienced by individuals regardless of their financial situation.

6 “Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances,” Board of Governors of the Federal Reserve System (September 2017). 7 While the SOFS included many of these items on surveys since 2008, only select past older results (3+ years) are included for reference. Statistical comparisons are only made between results from 2017 and 2018.

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Table 2: Most Common Financial Management Challenges, Active Duty Issue 2008 2012 2016 2017 2018

Provided unplanned financial support to a family member who did not live with you N/A 14% 16%

Had personal relationship problems with your partner due to finances N/A 14% 10% 12%

Had to pay overdraft fees to bank or credit union two or more times 19% 16% 12% 8% 11%

Borrowed from family and/or friends to pay bills N/A 11% 7% 10%

Failed to make a monthly/minimum payment on your credit card 11% 10% 7% 6% 9%

Took money out of a retirement fund or investment to pay living expenses N/A 9% 6% 7%

Was pressured to pay bills by stores, creditors, or bill collectors 11% 13% 7% 5% 7%

Table 3: Most Common Financial Management Challenges, Reserve Component

Issue 2009 2012 2016 2017 2018 Provided unplanned financial support to a family member who did not live with you N/A 15% 14%

Borrowed from family and/or friend to pay bills N/A 14% 13% 13%

Had personal relationship problems with your partner due to finances N/A 12% 12% 11%

Had to pay overdraft fees to bank or credit union two or more times 27% 21% 12% 11% 11%

Failed to make a monthly/minimum payment on your credit card 14% 11% 9% 8% 9%

Was pressured to pay bills by stores, creditors, or bill collectors 20% 17% 11% 10% 9%

Took money out of a retirement fund or investment to pay living expenses N/A 8% 8% 8%

Several of the most common issues, such as paying overdraft fees and missing payments, may indicate difficulty managing day-to-day finances or a short-term financial challenge, as the individual may be unable to cover the expense at that time. Fewer Service members reported experiencing issues that may indicate more pervasive financial management problems. Such issues indicate continuing challenges managing finances which could severely impact financial readiness, as resolving them may involve significant resources, attention, and stress. The most common among these included being pressured to pay bills by stores, creditors, or bill collectors (seven percent AD; nine percent RC) and having telephone, cable, or internet shut off (four percent AD; five percent RC). One percent or fewer AD Service members filed for personal bankruptcy, had a car repossessed, had a household appliance or furniture repossessed, or had their security clearance affected by their financial condition. RC Service members were slightly

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more likely to have a car repossessed or have their security clearance affected. While very few Service members reported any issue with their security clearance based on their financial situation, this represents a distinct impact of financial readiness on their ability to perform their military responsibilities. Service members with significant financial challenges may experience negative consequences including loss of security clearance or involuntary separation. In addition to these generally low occurrences, Service members may experience fewer financial management challenges than civilians. According to the 2018 NFCS, 13 percent of Americans took a hardship withdrawal from a retirement account in the past year, while 16 percent took a loan from a retirement accounts.8 This is greater than the seven percent of AD and eight percent of RC Service members who reported taking money out of a retirement fund or investment to pay living expenses.9 Also in the NFCS, 19 percent reported overdrawing their checking account compared to 11 percent of all Service members who indicated doing so at least twice. Financial Products and Services Few Service members indicated they used any of a list of financial products and services in the past 12 months to cover their routine expenses and 2018 results are generally consistent with past years. Table 4 shows the prevalence of the financial products and services included on the survey.

Table 4: Use of Financial Products and Services Product or Service Active Duty Reserve Component

Overdraft protection from savings, credit card, or another account

7% 7%

Cash advance on a credit card 6% 3% Overdraft line of credit 6% 3% Loan or grant from military aid society 4% 2% Other loan obtained online 3% 2% Vehicle title loan 3% 3% Bank direct deposit advance loan 2% 1% Overdraft loan 2% 2% Payday loan 2% 2% Pawn loan 1% 1% Tax refund anticipation loan 1% 1%

These products and services may have high costs that can pose a threat to financial readiness. While some financial institutions may offer free overdraft protection, this service typically costs $25 to $40 per transaction. Credit card companies may charge 10 percent of the amount of a cash advance, in addition to any interest that accrues on an unpaid balance, typically at higher 8 “The State of U.S. Financial Capability: The 2018 National Financial Capability Study,” FINRA Investor Education Foundation (June 2019). 9 Service members may have less opportunity to borrow from a retirement account, as they cannot withdraw money from their defined benefit pension. They may make withdrawals from their TSP account or other established retirement savings.

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rates than normal credit card purchases. Other products traditionally have significantly higher interest rates. In 2006, the DoD issued a report to Congress on the potential harmful impacts to military readiness caused by some of these products and the predatory lending practices targeting Service members.10 Shortly after, Congress passed the Military Lending Act (MLA) and the DoD issued implementing regulations in 2007 and revised regulations in 2015. Under the revised regulations, most credit extended to an AD Service member or dependent is subject to requirements under the MLA, including a maximum 36 percent Military Annual Percentage Rate. While the survey includes terms such as “payday loan,” “pawn loan” and “vehicle title loan” that are typically considered high-cost credit products, the DoD cannot determine from the survey whether or not the products referenced by Service members comply with the MLA. Recent results, including 2018, show a decline in use of these products and services over the years. For example, DoD’s 2013 Quick Compass of Financial Issues survey found that 19 percent of AD Service members reported using overdraft protection, compared to just seven percent in 2018. Among all the products, only a credit card cash advance was more common overall in 2018 than 2017 – six percent compared to three percent. AD senior enlisted were more likely than average to use overdraft protection (nine percent), an overdraft line of credit (seven percent), and an online loan (four percent), while junior enlisted were more likely to use a vehicle title loan (five percent). RC junior enlisted were also more likely to use a vehicle title loan (four percent) than RC Service members overall. Across most of the products and services, officers were less likely to report using them. The decline in use of these products may further illustrate a favorable comparison between the military and overall populations. According to Experian, personal loan debt increased 12 percent in the past year, more than any other type of debt.11 This increase is part of a broader trend of record levels of debt among Americans. In November 2019, the Federal Reserve Bank of New York reported the 21st consecutive quarter of increased household debt among Americans, as well as the highest nominal total since 2008.12 Financial Well-Being Scale The survey includes a financial well-being scale, designed and first used by CFPB, which provides a method to accurately and consistently quantify financial well-being. Service members are asked to respond to 10 items by indicating how well a statement describes them or how often a statement applies to them. The combined responses produce a numeric score on a scale of 0 to 100, where 100 represents a high level of financial well-being. The scale allows DoD to compare a common measure of financial well-being across population groups and over time. Additionally, DoD is able to compare results with representative surveys of the U.S. population, such as CFPB’s own National Financial Well-Being Survey and the NFCS. Many

10 “Report on Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents,” Department of Defense (August 9, 2006). 11 “Personal Loan Debt Continues Fast-Paced Growth,” Experian (October 14, 2019). 12 “Household Debt Continues to Climb in Third Quarter as Mortgage and Auto Loan Originations Grow,” Federal Reserve Bank of New York (November 13, 2019).

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DoD financial counselors also use the scale as a self-assessment in their own one-on-one interactions with Service members. Based on response to the 10 items, both AD and RC Service members had an average financial well-being score of 60. This is better than the average of U.S. adults found in both CFPB’s National Financial Well-Being Survey (54) and the 2018 NFCS (52). In addition, Service members were more likely to have scores at the higher end of the scale. Figure 3 shows the distribution of scores. While CFPB’s survey found that 36 percent of U.S. adults had a score above 60, 47 percent of AD and 46 percent of RC Service members had similar scores.

Since the scale provides a common measure of financial well-being, the DoD can compare results across population groups and even based on certain financial behaviors as measured by other questions on the survey. Among AD Service members, enlisted Service members had a lower score than the average of 60, with junior enlisted averaging 58 and senior enlisted averaging 59. Junior officers (66) and senior officers (68) both averaged higher scores. Among Services, Marines averaged a lower score (59) while Airmen scored higher (62). There was no difference between AD Service members based on duty stations in the United States compared to overseas, but those living on-base had a lower score (59), while those living off-base had a higher score (61). This may be a result of the characteristics of the individuals living on or off-base, as junior paygrades are more likely to reside on-base. Compared to 2017, when DoD included the financial well-being scale for the first time, AD Service members had a lower average score overall in 2018: 60 compared to 61. Senior enlisted were the only paygrade group to exhibit a lower score in 2018 (59) compared to 2017 (61). Among RC paygrade groups, only junior enlisted had a lower average score (57) than RC Service members of other paygrades. Army National Guard and Army Reserve Soldiers had

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Figure 3: Distribution of Financial Well-Being Scale Scores

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lower scores, while Navy Reserve, Air National Guard, and Air Force Reserve had higher scores. RC Service members who were activated more than 30 days in the past 12 months had a higher average score (61) than those who were not (60). Similarly, RC Service members who deployed for more than 30 days in the past 24 month (62) had a higher score than those who had not deployed (60). This may be based on the characteristics of those who were activated or deployed, but it may also indicate that extended periods of AD are a financial benefit for RC Service members. The survey also indicated significant differences in the financial well-being of RC Service members based on their civilian employment status: those who were employed part-time or a student full-time had a lower average score (58). Certain financial behaviors appear to correlate to higher or lower financial well-being scores. These findings reinforce the benefit of certain positive behaviors as a subject of DoD financial literacy efforts. Among both AD and RC Service members, those who pay their credit card in full had an average score of 66, while those who pay more than minimum but less than the full balance averaged 59, and those who pay only the minimum averaged 49. Positive savings behaviors were associated with higher levels of financial well-being. Service members who regularly put aside money to save or invest each month had a higher average score (66 AD; 67 RC). Those who reported saving or investing whatever is left with no regular plan had an average score of 58. Service members who reported not being able to save or invest because they spend more than their income had a considerably lower financial well-being score (44 AD; 46 RC). Overall, those who indicated a savings habit had a higher average score (63) than those who did not save (49). Limited emergency savings was also associated with lower financial well-being scores: those with less than one month of savings had an average score of 54, while those with no emergency savings had even lower average scores (52 AD; 51 RC). These results help DoD understand how certain financial behaviors relate to overall financial well-being and demonstrate the importance of financial literacy education in enabling Service member’s to make informed financial decisions in support of their financial readiness. Financial Knowledge The SOFS also includes a series of 12 questions intended to objectively assess Service members’ understanding of a number of general financial concepts and several military-specific financial concepts (e.g., TSP contributions). Five questions first appeared in the NFCS, a triennial survey last conducted in 2018. Three of those also appeared on the Federal Reserve Board’s 2018 SHED. Both of these scientific surveys are designed to be representative of the U.S. population. These common questions allow a comparison of the military and overall U.S. populations on several general financial concepts.

• Interest Rates: “Suppose you had $100 in a savings account and the interest rate was two percent per year. After five years, how much do you think you would have in the account if you let the money grow?” Answer: More than $102

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• Inflation: “Imagine that the interest rate on your savings account was one percent per year and inflation was two percent per year. After one year, how much would you be able to buy with the money in this account?” Answer: Less than today

• Compounding Interest in Debt: “Suppose you owe $1,000 on a loan and the interest rate you are charged is 20 percent per year, compounded annually. If you did not pay anything off, at this interest rate, how many years would it take for the amount you owe to double?” Answer: At least two years but less than five years

• Mortgages: “A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less. True or false?” Answer: True

• Stock Risk: “Buying a single company’s stock usually provides a safer return than a stock mutual fund. True or false?” Answer: False

Table 5: Financial Knowledge, Military and U.S. Populations

Survey Interest Rate Inflation Compounding Interest/Debt

Mortgages Stock Risk

2018 SOFS-A 74% 52% 37% 73% 53% 2018 SOFS-R 75% 55% 36% 77% 54% 2018 NFCS 72% 55% 30% 73% 43% 2018 SHED 70% 59% N/A N/A 47%

Percent correct on common financial literacy questions Service members overall were more likely to correctly answer the questions on interest rate, compounding interest, and stock risk correctly. RC Service members were additionally more likely to correctly answer the question on mortgages and comparable on the inflation question. Meanwhile, AD Service members were comparable on the mortgage question, while the inflation question appears to be the only instance where the military was less likely to answer correctly. On all questions except compounding interest, junior enlisted were less likely to answer correctly. This may be attributed to age rather than military status: the average age of the U.S. population from the two surveys is significantly higher than the average age of junior enlisted Service members, and older Americans are consistently found to have higher levels of financial knowledge. The two civilian surveys do not provide results for an age group similar to junior enlisted. Among the remaining questions, three concern military-specific financial topics. The majority of Service members (65 percent AD; 63 percent RC) understood that income tax could impact the value of a lump sum payment of retirement pay under the BRS. Among RC Service members overall and all RC paygrade groups, significantly more answered correctly in 2018 than 2017, including a nine percent increase overall. This may indicate that more were aware of the BRS in 2018 than in 2017, as the Department undertook efforts to educate 1.6 million eligible Service members throughout 2017 before they could opt-in to the BRS in 2018. Fewer Service members correctly answered a question about the rate at which DoD makes matching contributions to TSP under BRS. Overall, 49 percent of AD and 39 percent of RC Service members answered correctly. While more than half did not answer correctly, the vast

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majority of those indicated they did not know than responded incorrectly. Again, all RC paygrade groups showed increased knowledge, while only AD junior officers were more likely to answering correctly in 2018. As more and more Service members begin their service under the BRS, the Department will continue to provide regular training on the components of their retirement system so they can fully realize the financial benefits of military service. Service members receive regular training on their retirement system as early as during initial entry training. Less than two-thirds of Service members (28 percent AD; 26 percent RC) answered the final military-specific question on the SBP correctly. While the question concerns the SBP during AD service, Service members are not required to take any action related to SBP until retirement, when they must decide whether to continue to participate. Nevertheless, the Department has identified a need to incorporate SBP in financial literacy training and is developing and launching a number of educational resources in response. The results of these questions provide valuable information to help DoD understand with which topics Service members may have less familiarity, particularly for junior enlisted who are less experienced managing their own finances.

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ARMY The 2018 SOFS results indicate a similar or improved level of financial comfort among AD and RC Soldiers compared to most past results. The results provide key areas for the Army to focus financial literacy efforts as it continues to transform the entire program to meet new training requirements. Financial conditions for AD Soldiers were reported as comparable to or better than all but one previous survey since 2005. AD Soldiers have indicated a generally steady increase in their financial conditions, where 48 percent stated they were comfortable in 1999 to 66 percent in 2018, with an all-time high of 75 percent in 2016. For RC Soldiers, 64 percent of both the U.S. Army Reserve (USAR) and Army National Guard (ARNG) reported a comfortable condition, which is the same as the previous year and continues to represent an upward trend over the past 13 years. Eighty-four percent of AD Soldiers indicted their financial situation was the same or better compared to 12 months ago. The most common activities contributing to this statistic included better financial management, positive changes to employment, and a reduction in debt. Negative factors included increased debt, financial management problems, and changes in family situations. Among RC Soldiers, 83 percent of USAR and 84 percent of ARNG reported a better or similar financial situation. Similar to AD Soldiers, positive factors were from better financial management, changes related to employment, and reduction in debt. Not surprisingly, changes related to employment was also a negative factor for RC Soldiers given the nature of their dual employment status. Additional negative factors included financial management problems and increased debt, which were both similar to AD Soldier indicators. Overall, 80 percent of AD Soldiers reported they had a savings or investment habit, with 46 percent having a regular plan and 34 percent saving what is leftover. Regular plans were more likely among senior and junior officers, and junior enlisted were more likely to save what is leftover. Junior enlisted continue to exhibit better savings habits than senior enlisted. A very small percentage have no savings habits due to spending more than their income. All of these statistics are similar to past results. For the RC, 78 percent of both USAR and ARNG Soldiers had a savings or investing habit, with 40 percent of USAR and 42 percent of ARNG regularly putting money aside each month. Another 38 percent of USAR and 37 percent of ARNG saved what was left over, while 22 percent of both components were unable to save at all. Senior officers were much more likely to save than all other grades, while all other paygrades saved less. Junior enlisted were least likely to save regularly (28 percent USAR; 33 percent ARNG). Eighty-two percent of AD Soldiers indicated they had an emergency fund: 18 percent had less than 1 month, 33 percent had between 1 and 3 months, 18 percent had between 3 and 6 months, and 13 percent have more than 6 months. Senior enlisted were more likely to indicate less than 1 month. Junior and senior officers were more likely to indicate greater amounts of savings. Most

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notably, junior enlisted were more likely to indicate they do not have an emergency savings fund, potentially reflecting both lower income and expenses, and a need to educate on the value of emergency savings at this level. Among RC Soldiers, 77 percent of ARNG and 80 percent of USAR had an emergency fund, with comparable distributions to AD Soldiers. Junior and senior officers were more likely to indicate more savings, with comparable levels to AD. As with the AD force, RC junior enlisted were more likely not to have an emergency fund and ARNG Soldiers overall were lower than the average DoD response. The most common financial goals were saving for retirement (83 percent AD; 82 percent USAR; 82 percent ARNG), saving for children’s education among those with children (79 percent AD; 75 percent USAR; 73 percent ARNG), saving for emergencies (73 percent AD; 76 percent USAR; 73 percent ARNG), and being free of debt (72 percent AD; 73 percent USAR; 72 percent ARNG). Across half of the financial goals, junior enlisted were more likely to indicate yes, while officers were less likely to indicate yes. Eighty-two percent of AD respondents indicated they have a credit card. Of those, 37 percent pay the balance in full every month, and 52 percent pay more than the minimum. Among junior enlisted, 35 percent indicated they do not use a credit card at all, an increase over last year. Among USAR Soldiers, 84 percent have a credit card, with 39 percent paying the balance in full every month, and 51 percent paying more than the minimum. For the ARNG, 76 percent have a credit card, with 37 percent paying in full every month, and 53 percent paying more than the minimum. For comparison, 27 percent of USAR and 37 percent of ARNG junior enlisted indicate they do not use credit cards. Thirty-one percent of AD Soldiers indicated they experienced one or more financial management challenges, up from the past year. The most common challenges included providing financial support to family members (17 percent), relationship problems due to finances (13 percent), repeatedly paying overdraft fees (13 percent), failing to make minimum credit card payments (12 percent), and having to borrow money to pay bills (11 percent). One percent or fewer indicated they had to file for bankruptcy, had a possession repossessed, or had their security clearance affected by financial issues. Among USAR Soldiers, the most common challenges were borrowing money from family (17 percent), providing financial support to family members (15 percent), relationship problems due to finances (12 percent), repeatedly paying overdraft fees (12 percent), failing to make minimum credit card payments (12 percent), and being pressured to pay bills (10 percent). Officers were less likely to indicate problems across all categories. Among ARNG Soldiers, 32 percent indicated a challenge in the past 12 months; the most common were providing financial support to family members (15 percent), borrowing money to pay bills (14 percent), relationship problems due to finances (12 percent), repeatedly paying overdraft fees (12 percent), and being pressured to pay bills by stores/creditors/bill collectors (11 percent). As with the other components, officers were less likely to indicate problems with finances.

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Few AD Soldiers reported using high cost or unconventional credit products to cover routine expenses. The most common were overdraft protection (seven percent) and using a cash advance on a credit card (five percent). Very few used a vehicle title loan (four percent), payday loan (three percent), or pawn loan (two percent). Like AD, RC Soldiers were most likely to rely on overdraft protection (seven percent). ARNG Soldiers similarly reported a cash advance second-most frequently (three percent), while USAR Soldiers were more likely to have used a vehicle title loan. Otherwise, in similar fashion to the AD, other products were used sparingly. The Army has approached a Total Force effort towards financial literacy and embraced the changes set forth in the NDAA for FY 2016, requiring delivery of specific financial topics at certain career or personal milestones in a Soldier’s career. Furthermore, financial education and counseling have been a cornerstone of Army Community Services, Survivor Outreach Services, and Soldier and Family Assistance Centers. Starting in Basic Combat Training, the Army instills a bedrock of the current pay structure the Army provides, which is often either new or a significant change for new Soldiers. At the end of advanced training and during officer accession training, Soldiers receive more thorough training, to include addressing many of the subjects included in the survey, including everyday budgeting, saving/investing, planning for retirement, making major purchases, managing credit cards, and avoiding high-cost credit products. Army Personal Financial Managers (PFMs) continue to enhance this message throughout a Soldier’s career. Soldiers receive additional concentrated training as they transition out of the service. The SOFS is the primary measurement of financial literacy as it relates to how well Soldiers perform in their everyday lives. Although training alone cannot avoid all pitfalls and poor decisions, low indicators on high cost products, and high indicators on positive goals and behaviors indicate the program is performing or moving in the right direction. As with any program, there is always room for improvement. The Army uses the survey findings to shape training products to achieve required training objectives. Working with an advisory council of Army PFMs and supported by a non-profit organization, the Army uses survey data to influence training and counseling, especially in light of the new BRS. The Army will continue to use data on financial challenges and high-cost credit products to focus additional education efforts.

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MARINE CORPS SOFS results for 2018 indicate a high level of financial well-being and many positive financial behaviors among Marines. Marine Corps results for 2018 improved or remained the same relative to prior years. While in some instances, Marine Corps responses were lower than the DoD average, junior enlisted overall exhibited similar results. This may be indicative of the young average age of the Marine Corps when compared to other Military Services. Of note, the average Marine Corps financial well-being score was 59, which is above the national average of 54 for the U.S. adult population. Overall, 63 percent of AD and 60 percent of RC Marines reported a comfortable financial condition. A large majority of Marines (82 percent) indicated their financial situation in 2018 was better or the same compared to 12 months ago. The top three reasons reported by Marines for improvements in their financial condition are consistent with DoD results: better financial management (70 percent); change related to their employment (57 percent); and reduction in debt (52 percent). Marines who reported they were worse off indicated that the top three reasons were increased debt (68 percent); financial management problems (47 percent); and change in their family situation (37 percent). Eighty-six percent of Marines indicated they have a credit card. Of those, only 35 percent indicated they pay the balance in full each month and 12 percent indicated they pay only the minimum payment. Junior officers (78 percent) and senior officers (74 perfect) were more likely to pay in full. Junior enlisted were more likely (21 percent) to report not using credit cards. Credit card usage and debt management are key messages in the Marine Corps’ Personal Readiness Seminar (PRS). The PRS is a week-long training all Marines complete at their first duty station and includes financial literacy in order to develop financial skills and encourage positive financial behaviors early in a Marines career. Twenty-nine percent of Marines reported at least one financial management challenge, which is consistent with overall DoD results. Across most financial problems, officers were less likely to have experienced them. The top five most common financial problems are consistent between Marines and the DoD overall: provided unplanned financial support to a family member (15 percent); had personal relationship problems with their partner due to finances (12 percent); had to pay overdraft fees to their bank or credit union two or more times (12 percent); and borrowed money from family and/or friends to pay bills or failed to make a minimum credit card payment (10 percent). More Marines paid overdraft fees or failed to make a monthly minimum payment on their credit card(s) in 2018 compared to 2017. While the occurrence rate is low for several serious financial problems, the Marine Corps considers these extremely high-risk issues: utility shut off for non-payment (two percent); repossessions (one percent); filing for bankruptcy (one percent); and loss of security clearance (one percent). Few Marines indicated they used financial products or services to cover routine expenses. The most common financial products or services used were: overdraft line of credit (nine percent); cash advance on a credit card (seven percent); overdraft protection from savings, credit card, or another account (seven percent); and loan or grant from military aid societies (five percent).

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Navy-Marine Corps Relief Society, which provides financial assistance to Marines, and the MLA have helped reduce the use of these financial products and services substantially. However, Marines continue to access these products in small percentages. These results are consistent across the DoD overall and this is not a Marine Corps specific issue. Eighty-one percent of AD Marines reported having a savings or investing habit, with 47 percent putting money aside regularly and 34 percent saving whatever is left. Sixty-two percent reported emergency savings equal to more than 1 month of expenses, while 20 percent reported they did not have an emergency savings fund. Junior enlisted members (30 percent) were considerably more likely to indicate they do not have an emergency savings fund. The combination of lower income and less time to accumulate savings when compared to senior ranks may factor into the survey results. Additionally, a lack of emergency savings may contribute to the use of financial products and services reported in the SOFS. RC Marines had similar results: 83 percent had a saving or investment habit, with 44 percent saving regularly each month and 39 percent saving whatever is left. Fifty-eight percent had more than 1 month of emergency savings, while 25 percent had no emergency savings. While the top four financial goals are consistent between the Marine Corps and DoD, there is some variation between paygrades within the Marine Corps, especially when reviewing less common financial goals. Saving for retirement was the most common financial goal among Marines (85 percent AD; 83 percent RC), and there was no significant difference between paygrades. Among Marines with children, 79 percent of AD and 70 percent of RC reported saving for their child(ren)’s education as a financial goal. AD junior enlisted Marines (86 percent) indicated the highest percentage in that category. Saving for a safety net/emergency fund was a financial goal for 74 percent of AD and RC Marines, with junior enlisted (78 percent) most likely to be working on this goal. Sixty-eight percent of AD and 63 percent of RC Marines indicated being free of debt, except for mortgage, with senior enlisted (73 percent) being the most likely. Results for saving for retirement, saving for a safety net/emergency fund, and buying a vehicle were lower in 2018 than 2017. Overall, survey results indicate a high level of financial well-being and positive financial behaviors across both the Marine Corps Active and Reserve Components. The 2018 SOFS results will help guide PFM leadership in continuing its mission of providing financial education to Marines and maintain our position as the number one trusted source for unbiased financial information on Marine Corps installations globally.

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NAVY The results of the 2018 SOFS serve as an indicator of the Navy’s overall financial well-being, and provide valuable information to improve the Navy’s personal financial readiness program. Personal financial readiness is a key component of the overall Family Readiness System, a network of agencies, programs, services, and individuals that work in a collaborative manner to assist members and their families to meet the unique challenges associated with military service. As an indication of the Navy’s personal financial readiness, AD and RC members had a higher average CFPB financial well-being score when compared to the U.S. adult population average score. The financial condition of AD members in 2018 was generally comparable to 2017. A little less than two-thirds (64 percent) of AD members reported their current financial condition as comfortable, while 25 percent indicated they had some difficulty. Eleven percent of AD members indicated they were not comfortable. Senior officers (91 percent) and junior officers (88 percent) were more likely than members in other paygrades to indicate they were comfortable with their financial condition. The percentage of AD members with a comfortable financial condition was comparable to past years since March 2005, with the exception of February 2016 and 2011. A large majority of AD members (82 percent) indicated their financial situation in 2018 was better or the same compared to 12 months ago (42 percent better; 40 percent same). Eighteen percent indicated their financial situation was worse. The primary reasons AD members indicated their financial situation was better were better financial management (67 percent), reduction in debt (60 percent) and change related to employment (58 percent). Conversely, the primary reasons the financial situation was worse were increased debt (67 percent), other reasons (47 percent) and change in family situation (43 percent). The financial condition of RC members in 2018 was generally comparable to 2017. Seventy-two percent reported a comfortable financial condition, and were more likely to indicate comfortable than DoD Service members overall. Nine percent indicated they were not comfortable. Senior officers (90 percent) and junior officers (90 percent) were more likely than members in other paygrades to indicate they were comfortable with their financial condition. The results in 2018 were comparable to 2017 and 2016, and significantly higher compared to past years. Eighty-seven percent of RC members indicated their financial situation in 2018 was better or the same compared to 12 months ago (45 percent better, 42 percent same). Thirteen percent indicated their financial situation was worse. The primary reasons RC members indicated their financial situation was better were changes related to employment (66 percent), better financial management (65 percent) and reduction in debt (65 percent). Conversely, the top reasons RC members indicated their financial situation was worse were increased debt (65 percent), change related to employment (57 percent) and other reasons (49 percent). Overall, 82 percent of AD members indicated they have a savings or investment habit: 45 percent save or invest by regularly putting money aside and 37 percent save or invest whatever is

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left over. There was significant variance between paygrade groups: 78 percent of senior officers and 69 percent of junior officers saved or invested regularly, compared to 41 percent of senior enlisted and 38 percent of junior enlisted Sailors. Fifteen percent said they were unable to save because they spend as much as their income, while just three percent said they were unable to save or invest because they spend more than their income. RC members showed similar habits: 82 percent had a saving or investment habit, with 49 percent saving or investing regularly and 33 percent saving or investing whatever is left over. There was significant variance between paygrade groups: 78 percent of senior officers and 67 percent of junior officers saved or invested regularly, compared to 43 percent of senior enlisted and 33 percent of junior enlisted Sailors. Fourteen percent indicated they spend as much as their income, while just three percent spend more than their income. The majority of members also indicated they have an emergency savings fund, including 83 percent of AD and 86 percent of RC. Fourteen percent of AD stated they have emergency savings equal to more than six months of their typical expenses. Twenty-two percent of RC members indicated they have more than 6 months’ worth of savings, and were more likely to indicate more than 6 months than DoD Service members overall. An additional 18 percent of AD and 20 percent of RC indicated between 3 and 6 months’ worth of savings. Approximately one-third of members (34 percent AD; 28 percent RC) had between 1 and 3 months of savings, while 18 percent of AD and 16 percent of RC said they had less than 1 month. The remaining 17 percent of AD and 14 percent of RC indicated they did not have an emergency savings fund. Among AD members, officers were more likely to have more than three months in emergency savings, while senior enlisted were less likely. For example, 30 percent of junior officers had 3 to 6 months of emergency savings, compared to 15 percent of senior enlisted. Senior enlisted members were more likely (21 percent) to indicate less than 1 month’s worth of savings while junior enlisted members were more likely (27 percent) to indicate they did not have an emergency savings fund. The Navy RC showed similar trends. Approximately one-third of RC officers (36 percent senior officers; 32 percent junior officers) had more than 6 months in savings, while just 13 percent of junior enlisted did so. Senior enlisted members were more likely to have less than 1 month in savings at 19 percent compared to eight percent of senior officers and seven percent of junior officers. Similar to AD members, RC junior enlisted Sailors were most likely to not have any emergency savings: 26 percent said they did not, compared to 14 percent overall. A large majority of members indicated saving for retirement was a financial goal, including 84 percent of AD and 82 percent of RC. Other top goals of a large majority were saving for children’s education (79 percent AD; 73 percent RC of those with children); being free of debt, except for mortgage (70 percent AD; 72 percent RC); saving for a safety net/emergency fund (70 percent AD; 67 percent RC); being free of credit card debt (65 percent AD; 63 percent RC); and saving for a vacation (65 percent AD; 62 percent RC). Across most financial goals, AD and RC officers were less likely to report an item was a financial goal, indicating they may have already achieved many of them.

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Ninety-two percent of AD and 94 percent of RC members reported they routinely pay credit card debt. Of those who use credit cards, about one-third (34 percent) of AD and 43 percent of RC members who use credit cards indicated they pay the balance in full when incurred. About half (54 percent AD; 48 percent RC) indicated they typically pay more than the minimum payment but not the full balance. RC members were more likely to pay in full than the DoD overall, while AD members were more likely to pay more than the minimum payment but not the full balance. Finally, 12 percent of AD and 10 percent of RC members who use credit cards indicated they typically pay just the minimum payment. Junior enlisted were more likely not to use credit cards, while senior enlisted were more likely to pay more than the minimum payment but not the full balance. Twenty-eight percent of AD and 27 percent of RC members reported they experienced a financial management challenge in the past 12 months. The most common financial management challenges reported by members were having personal relationship problems with their partner due to finances (12 percent AD; 11 percent RC); having to pay overdraft fees two or more times (12 percent AD; 10 percent RC); and borrowing money from family or friends to pay bills (10 percent AD; 10 percent RC). Very few members experienced more serious financial problems. Overall, across most financial management challenges, officers were less likely than others to indicate they experienced them in the past 12 months. Few reported they used various financial products or services to cover routine expenses in the past 12 months. Most commonly, 12 percent of AD and seven percent of RC members used an overdraft line of credit; nine percent of AD and eight percent of RC members used overdraft protection from savings, credit card, or another account; and eight percent of AD and five percent of RC members used a cash advance on a credit card. Six percent of AD members used a loan or grant from a military emergency relief society. Very few members reported using potentially high-cost credit products: two percent of AD and RC members used a vehicle title loan; and one percent of AD and two percent of RC members used a pawn loan or payday loan, respectively. Overall, across most financial products or services, AD officers were less likely than others to use them to cover routine expenses. Similarly, RC junior officers were less likely to use half of the products or services. The Navy recognizes that the personal financial readiness of members and their families must be maintained to sustain mission readiness. To this end, financial education efforts, such as the LifeSkills and Million Dollar Sailor (MDS) courses, are provided to address some of the behaviors (e.g., saving and investment habits, credit card use, and emergency savings) included in the survey. The LifeSkills course is a four-day course presented to all enlisted Sailors between boot camp and technical school training designed to provide Sailors with the knowledge and skills required to increase personal, family, and operational readiness by recalibrating mental models and assumptions, and building a culture of leadership, respect, professionalism, and trust. A major portion of the course—approximately 13 hours—delivers the fundamentals of financial literacy, to include BRS, TSP, spending plans, account management, credit, consumer awareness, car

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buying, insurance, and financial planning. Also, the LifeSkills Reach Back mobile app allows Sailors to revisit topics of interest. MDS is a 2-day course designed to assist Sailors and families to successfully navigate transitions of Navy life and the financial challenges that accompany them, enhance overall quality of life through financial growth, improve overall operational readiness and performance, and to enhance retention. The course was created to specifically combat the most common financial issues facing Sailors by teaching sound financial management skills and providing a comprehensive overview of steps to enhance personal financial fitness. Content includes many of the common financial challenges facing Sailors and families, including security clearance issues, credit management, identify theft, bankruptcy, mortgage and foreclosure issues, emergency savings, and multiple issues involving online buying and selling. The MDS course is also available via Joint Knowledge Online, the DoD’s online learning platform. Additionally, financial literacy education and training are delivered at personal and professional touchpoints across a member’s military lifecycle as outlined in section 992 of title 10, U.S.C., beginning with recruit training (boot camp) and continuing throughout a member’s career and transition to civilian life. To accomplish this, the Navy provides a wide range of tools and services, including AD and RC command financial specialists and Fleet and Family Support Center (FFSC) PFMs, to provide financial literacy touchpoint training on such topics as saving and investment habits, credit card use, emergency savings, SBP, TSP, and consumer protection. Survey findings from recent years have influenced the Navy’s financial education efforts. The most common problems identified will be emphasized when developing new online financial literacy touchpoint training in FY 2020 in order to bring awareness to potential pitfalls Sailors may face as they progress through their career. Additionally, FFSC PFMs are aware of the survey results in order to provide insight to the potential “problem areas” members may be facing as they counsel and aid Sailors with their financial problems and needs. Additionally, in August 2019, an updated version of the MyNavy Financial Literacy Mobile App included updates, such as credit card use, that were informed by the 2017 survey results. This app provides Navy members with information to help them achieve their personal financial goals and meet the Navy’s financial literacy education requirements. In conclusion, the financial condition of Navy members in 2018 was generally comparable to 2017. A large majority said their financial situation was better or the same compared to 12 months ago. A majority of members indicated they have a saving or investment habit, and a financial goal of saving for retirement. The majority of members indicated they have an emergency savings fund. Few reported experiencing a financial management problem or using financial products or services to cover expenses.

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AIR FORCE The SOFS plays an important role informing the Air Force Financial Readiness program, providing valuable data on what Airmen need, what Airmen are experiencing, and what resources Airmen use most often. Throughout the report, statistically significant comparisons are made between junior officers, senior officers, junior enlisted, and senior enlisted. These comparisons show how responses for one group (e.g., junior officer) are compared against all other groups (i.e., the total population minus the group being assessed). Overall, the Air Force’s results indicate Airmen are doing well financially as assessed by the financial readiness questions and the financial wellbeing assessment. The survey provides a compilation of responses from all components to include AD, Air National Guard (ANG), and Air Force Reserve (AFR). Across all components, higher or comparable percentages of Airmen reported comfortable financial conditions in 2018 as compared to previous years (72 percent AD; 78 percent ANG; 75 percent AFR). Across all components, a large majority of Airmen indicated their financial situation in 2018 was better or stayed the same compared to 12 months ago (85 percent AD; 90 percent ANG; 88 percent AFR). For AD (50 percent) and ANG (56 percent) components, junior enlisted were more likely to indicate better financial conditions. Additionally, AD Air Force junior officers (49 percent) were more likely to indicate better. Looking at techniques used to manage money, across all components, most Airmen were comfortable using nearly all of the financial management activities presented. Across all components, Airmen were most comfortable reviewing their Leave and Earning Statement (91 percent AD; 93 percent ANG; 92 percent AFR); evaluating purchasing/spending behavior (90 percent AD; 90 percent ANG; 91 percent AFR); and making short-term financial plans (87 percent AD; 90 percent ANG; 91 percent AFR). Understanding TSP was slightly lower (70 percent AD; 72 percent ANG; 74 percent AFR). Airmen were least likely to indicate understanding SBP, most likely due to its relevance at retirement (53 percent AD; 55 percent ANG; 60 percent AFR). Examining saving and investing habits, across all components, a majority of Airmen indicate they are saving or investing (85 percent for all components). Specifically, 51 percent of AD, 52 percent of ANG, and 54 percent of AFR reported saving or investing by regularly putting money aside, whereas 34 percent of AD, 31 percent of AFR, and 34 percent of ANG save and invest whatever is left over. Across all components, officers were more likely to indicate they save and invest regularly. Additionally, junior enlisted were more likely to indicate they save/invest whatever is left over—no regular plan (43 percent AD; 43 percent ANG; 41 percent AFR). Many Airmen across the components indicated routinely contributing to the TSP (71 percent AD; 69 percent ANG; 66 percent AFR). For AD Airmen, data indicates increased participation in TSP in 2018. Also common across all components was contributing to investments or retirement plans, other than TSP (57 percent AD; 69 percent ANG; 71 percent AFR). It is understandable that RC Airmen are more likely than AD Airmen to invest outside of TSP due to retirement plans associated with civilian jobs.

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Across all components, the four most common financial goals were saving for retirement (86 percent AD; 84 percent ANG; 83 percent AFR); saving for child(ren)’s education (of members with children) (76 percent AD; 73 percent ANG; 77 percent AFR); being free of debt, except for mortgage (67 percent AD; 71 percent ANG; 69 percent AFR); and saving for a safety net/emergency fund (69 percent AD; 68 percent ANG; 69 percent AFR). Examining how Airmen pay credit card debt, all components showed similar results. A majority of Airmen indicated they use a credit card (87 percent AD; 88 percent ANG; 91 percent AFR). Of those who do, across all components, less than half pay the credit card balance in full when incurred (42 percent AD; 44 percent ANG; 42 percent AFR) and about half pay more than the minimum payment but not the full balance (49 percent AD; 49 percent ANG; 52 percent AFR. Across all components, senior enlisted were more likely to indicate they pay more than the minimum payment but not the full balance. Additionally, Air Force officers, regardless of component, were more likely to indicate they pay the credit card balance in full when incurred and junior enlisted members across all components were more likely to indicate they do not use credit cards. Exploring the data on financial issues, across all components, the percentage of Airmen indicating experiencing a financial management challenge was 24 percent AD, 20 percent ANG, and 22 percent AFR. For all components, most common was providing unplanned financial support to a family member who did not live with you (14 percent AD; 11 percent ANG; 11 percent AFR). Other most common challenges included having personal relationship problems with your partner due to finances (nine percent AD; seven percent ANG; seven percent AFR), borrowing money from family and/or friends to pay bills (seven percent AD; six percent ANG; eight percent AFR), and paying overdraft fees to your bank or credit union two or more times (eight percent AD; six percent ANG; three percent AFR). No statistically significant differences exist for different paygrade groups when examining financial issues. Overall, use of financial products by Airmen is very low. Among financial products or services, use of payday loans and pawn loans is less than one percent across all components. Airmen’s use of vehicle title loans is a bit higher at two percent of AD, one percent of ANG, and two percent of AFR Airmen. Across all components, overdraft protection from savings, credit card, or another account was the most commonly financial product or service (six percent AD; six percent ANG; seven percent AFR). Airmen across all components indicate positive financial conditions, use of financial management tools, savings and investing habits, use of credit cards, and managing financial issues. The Air Force continues to monitor and analyze data from the SOFS as well as other data, such as TSP contribution rates and use of Air Force Aid Society loans and grants, to develop and refine the Air Force’s Financial Readiness program. Based on survey data, Air Force modified standardized curriculum to include additional emphasis on the importance and usefulness of building a safety net/emergency fund. Additionally, in 2018, Air Force Personal Financial Counselors provided a variety of workshops and individual counseling sessions to meet the emerging questions about the BRS. Air Force financial education efforts influenced by survey data demonstrate numerous financial behaviors including, but not limited to, appropriate

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use of credit cards, development of emergency savings and retirement savings, management of credit and debt, and management of spending plans to reflect current financial situation. Updated curriculum provided by Airman & Family Readiness Center staff at the first duty station touchpoint targets the specific financial behaviors listed above. Efforts are underway in FY 2020 to fully implement financial literacy training as required by section 992 of title 10, U.S.C., and will culminate with multiple lines of effort, including development of policy, procedures, curriculum, evaluation and IT support, being simultaneously launched. Forthcoming data on training effectiveness, specific to each financial literacy touchpoint, will also be leveraged to continuously improve financial readiness. This data is used for activities such as improving training, informing strategic communications, and identifying staff development training topics, among others, to ultimately result in a more ready and resilient Air Force.

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DOD FINANCIAL READINESS EFFORTS DoD and the Military Services provide programs and resources intended to support Service members’ ability to sustain and maintain their financial readiness through multiple approaches. Financial Literacy Education and Training Under section 992 of title 10, U.S.C., Congress required financial literacy training at several professional and personal life events throughout a Service member’s career. Training is intended help Service members develop skills to respond to financial changes resulting from personal and professional developments, such as marriage, relocation, deployment, or transition from service. In August 2019, DoD established terminal learning objectives so all Service members have a standard baseline of knowledge to support their financial readiness. In addition to traditional classroom and computer-based training, the DoD developed and launched several innovative learning approaches to meet the educational needs and preferences of today’s Service members. These include short, informal “microlearning” video modules intended to provide information in a brief, accessible format. These videos provide key learning objectives in alignment with required training, such as understanding a Leave and Earning Statement at initial entry training and special financial considerations related to deployment. The DoD Office of Financial Readiness has developed multiple educational resources informed by survey results that indicate Service members’ preference for self-driven education. In 2019, the Office of Financial Readiness debuted a dedicated financial readiness website (https://finred.usalearning.gov) to provide a central source for Service members and families, DoD financial educators and counselors, and others to access a vast collection of financial literacy educational materials, articles, and other resources. In collaboration with the Office of Personnel Management’s USALearning program, in early 2020, DoD will widely launch a financial literacy mobile learning app as an additional resource for Service members to access educational information. The app provides content adaptable to a user’s changing life circumstances and enables access to interactive, on-demand financial literacy resources. It will be available from the Apple App Store and Google Play platforms so Service members, family members, and the general public can access it on their own devices at their convenience. The Office of Financial Readiness also continues to provide educational content via social media to enable Service members and families access to information where and when they want it. Training extends to the Department’s PFMs, who are required to maintain relevant professional certification. The Office of Financial Readiness hosts an annual training symposium to help PFMs meet continuing education requirements and maintain current expertise through training on general and military-specific financial topics. In addition, through a partnership with the Department of Agriculture’s Cooperative Extension System, the DoD leverages academic expertise in public land-grant universities throughout the country to provide monthly continuing education webinars to PFMs and other DoD service providers.

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Financial Counseling Service members and families can access personal, professional financial counseling through a number of resources. The Military Services employ approximately 400 PFMs at military installations around the world. These certified professionals provide unbiased financial counseling and education in response to the unique needs of individual Service members. The DoD provides additional support via a flexible, contracted network of more than 300 Personal Financial Counselors (PFCs). PFCs supplement PFMs at military installations or are located in areas not served by a PFM, such as those with large concentrations of RC Service members. They also provide on-demand support for the unique needs of the Reserves and National Guard, such as drill weekends, annual training, family events, and deployment preparation. Between August 2017 and August 2018, PFCs provided more than 24,000 hours of such on-demand financial education and counseling. Overall in FY 2017, PFMs and PFCs conducted more than 1.8 million counseling sessions with Service members and families, as well as an additional 99,000 educational briefings and workshops attended by more than 1.3 million individuals. PFMs and PFCs collaborate with other military and family support areas, such as transition assistance or family counseling, to ensure awareness of financial counseling and to integrate services when appropriate. If Service members are unable to personally meet with a PFM or PFC, they also have access to free, confidential financial counseling from Military OneSource, the Department’s 24/7 support call center and website. Military OneSource provides an additional valuable resource for Service members and families to access personal support from any location at their convenience. External Collaboration In 2019, DoD continued to respond to the sense of Congress expressed in section 661(a) of the NDAA for FY 2016, which stated “the Secretary of Defense should strengthen arrangements with other departments and agencies of the Federal Government and nonprofit organizations in order to improve financial literacy and preparedness of members of the Armed Forces…” DoD works with Federal agencies and appropriate non-profit organizations to leverage their expertise and resources in support of the financial readiness of Service members and families. DoD serves as a member of the Executive Committee of the Financial Literacy and Education Commission (FLEC). The FLEC, established under section 9702 of title 20, U.S.C., is tasked with developing a national strategy for financial literacy and provides a forum for DoD to share information and resources with other Federal agencies. In addition, the DoD chairs the FLEC’s Military Working Group which develops strategic direction for policy, education, practice, research, and coordination of FLEC and Government-wide efforts serving current and former Service members and their families. In 2019, DoD launched its Financial Readiness Network to provide a framework to strengthen relationships with Federal agencies and non-profit organizations. Through a multidimensional approach, the network augments DoD financial education efforts by leveraging the resources and expertise of network members in support of the financial readiness of Service members and their families.

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CONCLUSION The annual SOFS provides a method for DoD to understand the financial behaviors, perceptions, goals, and knowledge of Service members. While the results of the 2018 survey indicate a generally positive perspective of the financial literacy and preparedness of Service members, they provide insight on behaviors or concepts where additional education focus may be necessary. Service members continue to report higher levels of financial comfort in recent years, though a slight decline in 2018 will be an area of ongoing focus. The vast majority of Service members felt their financial situation had improved or stayed the same in the past year. They are comfortable with and perform a wide variety of financial management activities, particularly those involving their short-term finances. Most Service members have a savings or investment habit and the vast majority have an emergency savings fund to protect against unexpected expenses. They are pursuing a variety of financial goals, although many goals were less common than previous years – indicating more senior Service members may have achieved their goals, while junior enlisted continued to be more likely to be pursuing short-term, purchase-oriented goals. Few experienced a financial management challenge and very few used potentially high-cost credit products to cover their expenses. Survey results indicate Service members may be doing better than the civilian population. Through use of a common measure of financial well-being, survey results indicate Service members possess higher levels of financial well-being than the average U.S. adult. They also are comparably or more knowledgeable than U.S. adults about several common financial concepts. Results on a series of financial knowledge questions provide valuable information to inform financial education efforts. In addition to the survey results, DoD continuously seeks opportunity to better understand the financial experiences and challenges of Service members and their families. Discussions with PFMs and military aid societies that provide support to Service members and families reinforce survey findings of improved financial well-being over time. In addition, installation visits and discussions with installation and unit leaders provide valuable information about the personal experiences of Service members and families in support of improving educational efforts. DoD programs and resources support the financial readiness of Service members and families by helping them develop skills to address financial challenges and meet financial goals so they remain financially ready and resilient throughout their military career and beyond.