Most Military Families Expect to be Hurt by Defense Spending Cuts

Despite a 1.3 percent pay raise this year, American military families are still struggling to pay down debt or contribute to long-term savings.

A new study from military financial planning firm First Command says three quarters of military households “expect to be at least somewhat financially impacted by cuts” in defense spending this year.

The lower-than-expected raise means many military families will put off needed household maintenance (38 percent), pay less on their debts (35 percent), and even rely more heavily on a spouse’s income by reducing 401(k) contributions (26 percent), the study found.

“Many of our career service member families continue to worry about how existing cuts to pay and benefits impact their near-term finances,” First Command CEO Scott Spiker said in a press release about the study. “We are particularly concerned that 28 percent of military families say they will respond to slowing pay growth by cutting back on saving for their long-term security.”


How military families are dealing with long-lasting budget cuts

Military families may be struggling, but they weren’t caught unaware. These budget cuts — and accordingly tiny raises — have been going on for a few years.

“The Budget Control Act of 2011 was designed to raise the country’s borrowing limit, on the condition that Congress find $1.2 trillion in cuts,” First Command says. “If the cuts were not found, automatic spending cuts would begin January 2013 and last through 2021, with approximately $500 billion coming out of the Department of Defense budget.” And that’s what happened.

So it’s no surprise a whopping 91 percent of military families “are taking precautionary measures to deal with defense spending cuts,” according to the study. More than a third “believe Congress should repeal the caps on military and domestic spending.” Military families are also more anxious about the cuts, with 69 percent reporting anxiety compared to 40 percent of civilian families.

Other impacts

Being responsible for more healthcare costs and smaller annual pay increases are among some of the biggest concerns military families are facing financially. “Sixty-five percent of middle-class military families feel financially stressed month to month. That’s 11 points higher than the general population,” the study said.

Almost 75 percent of military respondents noted that they had experienced a mental or physical health issue within the last year, and the overwhelming majority of those cases were mental issues (62 percent). The study also noted trouble sleeping and weight change were frequent issues and much more common among military families who did not use financial planners.

Only 36 percent of military families feel very financially secure month-to-month, about on par with the general population at 34 percent. But despite these problems, military families are more confident in their future prospects:

  • “49 percent of military families feel extremely or very confident in their ability to retire comfortably vs. 35 percent of the general population.”
  • “54 percent of military families feel extremely or very confident that their financial situation will improve in the next year vs. 37 percent of the general population.”

The study, released in May, surveyed 530 consumers with an annual household income of at least $50,000. Results of the First Command Financial Behaviors Index are reported quarterly.

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