Military Families Deploying Tax Refunds To Cut Debt And Grow Savings

Editor's note: The following analysis comes from a First Command Financial Behaviors Index release.

Facing the continuing fiscal uncertainties of defense downsizing, the majority of middle-class military families with a tax refund in their future are planning to spend it on shoring up their family finances.

Recent survey findings from the First Command Financial Behaviors Index reveal that about two thirds of middle-class military families (senior NCOs and commissioned officers in pay grades E-6 and above with household incomes of at least $50,000) who have received or expect to receive a tax refund plan to use it to save more and cut debt. In contrast, one in four plan to spend their refunds on home improvements, vacations and other consumer pursuits.

“Again this year, our annual survey on tax refunds reveals that the majority of middle-income military families are focused on frugal living,” said Scott Spiker, CEO of First Command Financial Services, Inc. “They are embracing prudence and self-reliance as a way of life. This is a particularly important trend today when so many of our servicemenbers and their families are facing the financial uncertainties of defense downsizing. Our survey reveals that almost half of respondents have been preparing for sequestration budget cuts by cutting back on everyday spending. Even the recent increase in the Social Security tax rate has prompted many consumers to cut back. Clearly military families are taking positive steps to get their financial lives squared away.”

The top tax refund spending plans among middle-class military families for 2013 are:

• Pay down debt (47 percent)
• Put into general savings (31 percent)
• Pay monthly bills (16 percent)
• Build up an emergency fund (16 percent)
• Home improvements (14 percent)
• Vacation (13 percent)
• Put toward an investment account (11 percent)
• Prepay major bills or expenses (8 percent)
• Consumer purchases (6 percent)
• Dining out (3 percent)
• Apply to future taxes (3 percent)
• Contribute to or open a college savings fund (2 percent)

Notably, the Index reveals different focuses among servicemembers with and without a financial plan provided by a financial advisor. Middle-class military families with a financial plan are significantly less likely to spend their tax refunds on paying down debt than those without a financial plan (35 percent versus 56 percent). And they are more likely to commit their refunds to optional expenditures, such as home improvements (23 percent versus 8 percent).

“These results suggest that military families with a financial plan already have sound savings and debt management behaviors, allowing them to more comfortably commit their tax refunds to discretionary goals and aspirations,” Spiker said. “The key to enjoying this level of financial confidence and security is the coaching relationship offered by the financial advisor who provides the plan. Through this ongoing relationship, our men and women in uniform and their families are developing the behavioral discipline to commit to important financial goals and dreams.”