Sequester Strikes Military Families as Pentagon Makes Budget Cuts

As Congress grapples with the spending cuts of the sequester, the Pentagon is slashing its budget—and career service members and their families are making cuts of their own, according to First Command Financial Behaviors Index survey findings released Tuesday.

The survey findings show that middle-class military families with household incomes of at least $50,000 are making a concerted effort to live more frugally, with 46% in February saying they were preparing for the sequester by cutting back on everyday spending, up 7 points from January. The U.S. government’s $85 billion in sequester cuts for 2013 began on March 1.

Military families have responded to the sequester by:

• Increasing savings (37% of respondents, up 7 points from the previous month)
• Decreasing the aggressiveness of investments (15%, up 6 points)
• Moving investments to cash (10%, up 2 points)
• Starting work with a financial planner (7%, up 2 points)

“This monthly uptick in frugality lends further support to our longer-term findings that military households are concerned about defense downsizing and are responding by making meaningful changes in their family finances,” said Scott Spiker, CEO of Fort Worth, Texas-based First Command Financial Services, in a statement. “By making positive changes in their family finances our men and women in uniform are responding with confidence to an uncertain future.”

The customer base of First Command Financial Services and its subsidiaries, including First Command Bank and First Command Financial Planning, a registered broker-dealer, is composed largely of active-duty and retired U.S. military personnel. The Financial Behaviors Index, compiled by consumer consultancy Sentient Decision Science, is a monthly survey of approximately 530 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000.

The index also revealed that military families anticipate defense downsizing will mean:

• Reduced retirement benefits (40%)
• Decreased discretionary income for non-essentials (39%)
• Reduced personal expense benefits such as housing, clothing and food (37%)
• Increased responsibility for health care costs (36%)
• Reduced likelihood to be promoted (28%)
• Reduced education benefits (25%)
• Increased likelihood of early separation or not serving to full retirement (19%)
• Forced relocation due to base closure and realignment (14%)

Read Congress Gets Ready to Tackle Tax Reform, Budget at AdvisorOne.