Servicemembers Committing Tax Refunds To Improve Family Finances

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

FORT WORTH, Texas – 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 seven out of 10 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. The Index shows similar results for non-military survey respondents, marking the fourth consecutive year that middle-class consumers have indicated they plan to invest their tax refunds in a healthier economic future.

“The majority of middle-income families are recognizing the value of planning for their long-term future,” said Scott Spiker, CEO of First Command Financial Services, Inc. “Frugality has become the new normal. The American Middle Class is embracing prudence and self-reliance as a way of life.”

Still, a significant minority of people remain committed to consumerism. The survey reveals that 31 percent of service members and their families plan to spend their refunds on consumer purchases, vacations, dining out and home improvements. In contrast, 26 percent of non-military respondents plan to spend their refunds on these types of expenses.

The top 10 tax refund spending plans among middle-class military families for 2012 are:

1. Pay down debt (43 percent)
2. Put into general savings (39 percent)
3. Build up an emergency fund (18 percent)
4. TIE: Home improvements / Pay monthly bills (14 percent each)
5. Vacation (9 percent)
6. TIE: Put toward an investment account / Consumer purchases (8 percent each)
7. Contribute to or open a college savings fund (6 percent)
8. Prepay major bills or expenses (4 percent)
9. Dining out (3 percent)
10. Apply to future taxes (1 percent)

Notably, the Index reveals different focuses among service members 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 home improvements and other consumer opportunities than those without a financial plan (21 percent versus 36 percent). And they are more likely to commit their refunds to a college savings fund (15 percent versus 2 percent).

“These results suggest that consumers with a financial plan are more disciplined in matters of consumerism,” Spiker said. “The key is the coaching relationship offered by the financial advisor who provides the plan. Through this ongoing relationship, families are developing the behavioral discipline to commit to their long-term financial goals and lifetime dreams .”