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Navy Announces Personal Financial Management Program

Presenters: Charles Nemfakos, Comptroller of the Navy
November 14, 2000 2:05 PM EDT

(Also participated in this briefing was retired Navy Adm. Jerome Johnson, chief executive officer and president of the Navy Marine Corps Relief Society; Navy Rear Adm. Stephen R. Pietropaoli, chief of Naval Information; Navy Capt. R. W. Andersen, commanding officer, Patrol Squadron Thirty, Naval Air Station Jacksonville, Fla.; and Avionics Technician First Class (NAC/AW) Pat Nolan)

Pietropaoli: Hi. I'm sorry to keep you waiting. I thought Admiral Quigley was going to do this. And I'll be on and off -- since I'm unaccustomed to public speaking, I'll be on and off in just a moment.

It's an important day for us. I thank you all for staying.

What we'd like to talk to you about today is, in just a moment, Secretary Nemfakos, the comptroller of the Navy or the financial manager of the Navy, will come up here to begin. But the real heart and soul of this story is with the captain and the young petty officer you see here, who will come up and talk to you about why we in the Navy feel that it's so important that we go the extra mile and commit the resources to providing our sailors and their family with the means by which to manage their own finances better, both to make better decisions about credit, better decisions about investments, and how to get more from the money that we're able to provide for them, which is never enough, but for what we give them, we'd like them to do better with it.

So with that, I'll bring Mr. Nemfakos, please.

Nemfakos: Thank you. Clearly, as unaccustomed as you are to public speaking, you just blew my comments to smithereens. But I'll try not to repeat verbatim.

Thank you all very much for staying behind and listening to our small tale of success. And I think it really is a tale of success.

A couple of years ago Secretary Danzig, almost two years to the day when he was sworn in, talked about improving the way we live, work, and fight. And so we've started a broad series of initiatives directly going to those kinds of things, ranging all the way from replacing mattresses to changing the way we paint ships and everything like that, all with a view of recognizing the change in our force, going away from a concept of a conscription force, where essentially labor was free, and you got people to do anything you wanted, and they had no choice, and "oh, by the way, I'm not particularly interested in whether you're happy or not," to a very professional, all-volunteer force that reflects in many instances the interests and demands that private-sector employers face day-to-day as they try to both recruit people and retain them.

The young people we're getting in today are a lot more sophisticated than I was at 18 when I first faced the draft. But in addition to that sophistication, they also have an extraordinarily more complex life that they're coming into. And one of those complexities is, for many of them they are bearing, all by themselves for the first time, the substantial burdens of making sound financial decisions; how they spend their money. But more importantly, how they deal with the various tools that we've introduced in the Department of Defense to make the operations of the Department of Defense more efficient and more economical. And now I'm talking about travel cards; I'm talking about government purchase cards and that range of things as well as the personal credit that's available to them.

Finally, we've had one more additional, both opportunity, but in a sense, burden added. As you all may recall, Admiral Jay Johnson, the former chief of naval operations had led an effort to allow our people in uniform to participate in thrift savings plans. The Congress of the United States, in enacting the authorization bill here recently actually approved that marvelous initiative for our people. It's a great opportunity, but it also imposes a burden on what is it; how do you deal with it? And remember that we're, in main, talking about a concern with the 50-60,000 17, 18, 19 year-olds that are coming in for whom this kind of a concept is a new idea.

So, we were in situation where, in the Navy, we were essentially spending a couple of hours at boot camp. And for those of you who have been through boot camp, you can remember the haze that you were in while you were being herded from place to place in that environments -- two hours. And what we did, essentially in two hours was as much as we could squeeze in two hours. We talked about their leave and earnings statement, maybe a couple of other things, but that was it -- to a whole new construct. And the construct has four major pieces.

First is two full days of professionally-delivered financial management training on a personal level; two full days as they arrive at the "A" schools right after completion of their boot camp period. And that instruction ranges all the way from the ethics of personal finance, because that's an important consideration -- remembering that there were a lot of interesting voices that would encourage the young to run up bills and then declare a personal bankruptcy as a way of getting out from under -- all the way to how to use a thrift savings plan; how do you make investments?

And that gamut covers electronic commerce, it covers financial institutions and understanding what financial institutions put a premium on, it covers how to protect your credit and everything like that.

The next step is a computer-based -- having given all of our people that very sound foundation -- is a computer-based vehicle, backbone, if you will, of information, that allows them at every stage of their career to have a reference tool to reach into and to be able to get additional information as their life changes. Remembering we're talking about 18-year-olds whose needs perforce are their immediate needs, to now they're going to move off-base, get an apartment. If they're not already married, they reach a next stage where they talk about a family and the needs of a family, continuing education, and it goes on; buying a house, ultimately financing an education for children.

The third piece is a piece that recognizes that spouses are a very important part of the Navy family. And their understanding, both of opportunities but also obligations is a very important part of our sailors deploying, having a certain comfort level that says, my spouse understands what needs to be done if there's a problem; if the car breaks down; if there's a need to borrow some money -- a good understanding of what the best way is to go about it. And the best way is not to go to your local loan shark and borrow money with a promise to pay back in the next payday.

And finally, a piece that deals with the contributing requirement, as our sailors grow and assume leadership positions, for them to be -- to have the tools necessary to be able to exercise that leadership responsibility as they help now the young sailors that are in their charge to understand both the opportunities but also the burdens.

We are very much taking a family approach to this because our view is that one, it's at the heart of family harmony, but secondly, it's a view that says that if you have something like financial turbulence disrupting the family, it shows up all over the place. It shows up in the home, it also shows up on the ship. And for that reason, I'm very, very happy that a member of long-standing of the Navy family, Admiral Jerry Johnson, the former vice chief of naval operations, who is currently the head of the Navy-Marine Corps Relief Society, was instrumental in our both recognizing the range and magnitude of the magnitude of the problem, the urgency that this issue has in terms of giving our young the tools, the provision of certain products that the society had developed in order to be able to help our people and, frankly, his personal and mature leadership, as the department tried to come to grips with it, because it did involve choices.

It involved making choices of spending money doing this, as opposed to buying missiles or something else.

And so, Admiral Johnson, thank you very much, and if you would like to say a few words?

Johnson: Thank you. Thank you very much, Charlie. Charlie has given you a great introduction into the solution to what some of the problems have been. I've been working in this job for the last six years. The Navy Marine Corps Relief Society is a private organization, not-for-profit.

And, very quickly, we observed that primarily the problems that young people were experiencing in the change of culture as they came into a military organization, first of all, they have access to instant credit and many of them are not well-educated in how to handle that personal responsibility.

Secondly, from the demographics, we find that more and more of them are getting married at a younger age, and they're making some lifestyle decisions at that younger age that forces them into dealing with extensive credit opportunities that is available to them, and leading to a burden and inability to pay and to repay some of their debts.

Now, what's the magnitude of the problem? Around 70,000 financial cases a year for the Navy Marine Corps Relief Society -- loans and grants that average around $45 million a year from us. This is a significant amount of money which I addressed to the Navy leadership and to the Department of Defense. We recognized then, first of all, was a compelling responsibility to provide accession training for these young people as they made the transition from the civilian life into the military life, because there was no training in their background in high schools or, perhaps, from families.

Secondly was the feedback from commanders of units. It's either the number one or two issue impacting on readiness in the Navy and the Marine Corps. And the impact results from the leadership and the middle management and command structures that must relate to these personal financial management hardships and address these problems so that a young person, as a sailor, Marine, is able to effectively respond to the mission task. So the impact on readiness is if a family is not well taken care of, if they can't put food on the table, if they can't pay the rent, can't pay the utilities, or the car is getting ready to repossess, they can't do a good job. And so frequently these are our clients.

And over a period of time, we came to the Navy and to the Marine Corps and said, you know, we have to address this issue through accession training to start giving them some training. And not only that, but we have to train the spouses, because when the units deploy, the chief financial officer is the wife, who is left back home, also untrained in who to pay and how to pay for some of the bills.

So where we started as an organization that was paying for emergencies or unexpected emergencies, roughly one-third of our cases now address the issues of mismanagement of the resources. The pay and allowances are directed and entitled for a young person perhaps who's single and living in the barracks. The demographics that over 60 percent of them now are living and have two children at very junior enlisted rates, and the inability to provide for that family impacts on them.

Command financial specialists have been trained and provided to units. Formal training now will be introduced into the training continuum after boot camp so that they can manage a checkbook, so that they know how to deal with credit. And I mentioned in my opening remarks, there's instant credit available to these young people because they're wearing the uniform of the U.S. military. And then there are other organizations that target the young military families: the fast cash, fast advance payday lenders that are notorious for building their establishments right outside the main gate. So I've written the attorney general of the states of Florida, the states of North Carolina, the states of California, where we have a concentration of these organizations that target young military families. And how they do this is agreeing, without any background check or credit checks, to an instant availability of cash -- $300, $400, $500. And the payback is within a couple of weeks, at payday, when they execute the collateral, which is a post-dated personal check, to get that cash.

And the APR is from 390 percent to 695 percent.

This became such a serious problem that the organization invited me to enter into a business agreement with them. And representing Army Emergency Relief and Air Force Aid Society and the Navy Relief, we chose to ignore the proposal, that we would enter into an agreement to pay off some of these fast-cash loans.

So we've made an effort, outside of the Navy and through the civilian community, through the armed forces committees, through the community services organizations, to address the problems and how young people can better address their own needs. The only resource a young person has is to come to the Navy Relief Society, perhaps, or if they're traveling throughout the United States, to go in a Red Cross office and then seek assistance.

But underlying all of this is the recognition that we need to be into a preventive program. We need to be proactive and preventive to prevent these large-scale loans that are coming up. You talk about $43 (million) to $45 million a year. That's a large amount of money to supplement the incomes for some of the families.

We always have taken care of emergencies -- death or illness in the family -- but now the emergent things that's unexpected to them. If we teach them how to buy a good-quality used car, then we don't expect to put so much money into vehicle maintenance. We average about $10 million in helping these young people pay for vehicle maintenance and vehicle repair.

So it's been a tremendous project, for our part. We have noticed that commands that have exceptional training programs enjoy higher states of readiness, higher states of retention of the military people, and we've noticed that if they have a program that's very proactive and provide financial management training to their sailors and their Marines, they're much happier and they're able to do their job better.

So I'd like to introduce Captain Andy Andersen, who's one of the key players in the program and has had personal experience in how to provide training to his sailors, which we've now translated into an institutional program of personal financial management training for sailors and Marines.

Thank you very much.

Andersen: Thanks, Admiral.

I'm Captain Andy Andersen. I'm the commanding office of VP-30, which is a P-3 squadron in Jacksonville, Florida. I have 33 P-3s and 1,200 folks.

This is a dream come true for me. In 1993, I was commanding officer of VP-16 in Jacksonville. A young E-4 walked up to me and said, "Skipper, I have $500 to invest, and I hear you know something about investing."

And I said, "Well, tell me something, shipmate; how much have you got in savings, how much do you have in life insurance?" And he's going, "Well, I don't have a whole lot there." And so I started talking to him. Within five minutes, I had 20 guys standing around me with their mouth open -- guys and gals -- saying, "I want more." So I knew I had a market.

I started a financial planning seminar that blossomed into a two and a half hour talk about buying used cars, homes, how you can get in trouble with credit. And it became so big that it almost became a full-time job, and I knew the Navy needed it.

It's so important we have the command financial specialist show people how to balance their checkbooks, but nobody was talking about long-term, "Hey, put $50 to $100 a month away in a conservative mutual fund when you're young" and the difference that this can make in their lives.

You know, it made my day, about three months ago, when a young sailor picked me up after I got off my aircraft, and he said to me, "Skipper, this is a chance for me to yell at you. I got you one on one. But I want to thank you for your financial seminar. I've called the insurance companies, I've made the changes. I'm saving $300 a month right now and I'm investing that money." He's 26 years old, has one kid and a wife -- one child. What a difference that's making in his life.

Just yesterday, a sailor came across the parking lot, shaked (sic) my hand and said, "Skipper, I listened to your lecture. I needed to fix my car. I had no money, so I went to Navy Relief for an interest-free loan," -- like the admiral was talking about -- instead of a payday lender at 1,000, 500 percent, or whatever the APR would be. That made my day.

I am the commanding officer of the largest squadron in the Navy -- some people argue the world -- with 1,200 folks. I've seen the impact that this makes on people. The number one cause of domestic discord -- you read any article -- is money -- and talking about it -- I know in my home it's a big discussion item, and it's number one.

If I've got sailors coming to work to work on my multi-million dollar aircraft and flying them, who have creditors beating on their door, and they're not getting along with their spouse, I've got problems. I don't want them working on my airplanes. And we have ashortage of people right now; I'm short on folks, and I can't afford for them to have this problem.

So I've taken up this cross and I've carried this for about seven years, and I'm so happy to see this come to fruition. It is a readiness issue, and the key is early education. To get them out of boot camp, to get them out of the Naval Academy, out of the colleges, learning about this stuff is so critical, because as you know, time is the key. You invest early and let time build that money. And that's what this program is going to target.

And this can help them beyond the command they're in, beyond the Navy, and into the rest of their life. How can you add to -- the quality of life is tremendous that this can add to the quality of life.

This is taking care of our most precious asset. You can have all the ships and guns and everything you want, but unless you take care of the people that man them -- and this is really doing it, going right to the heart of it.

It's really fixing. So they are our most precious asset.

We have retention problems. This has worked in my squadron. My retention is 20 percent higher in VP-30 than the rest of the Navy. So I'm seeing how this works to really care about our people.

So thank you for your time. And I'd like to introduce Petty Officer -- yes, sir?

Q: Skipper, you've got how many personal financial managers for these 1,200 people?

Andersen: How many do I have?

Q: Yeah, how many do you have? Do you have one for 1,200 people, or --

Andersen: No, sir. I have roughly 10 to 12 in the squadron.

Q: Ten to 12 PFMs?

Andersen: Yes, sir.

Johnson: The Navy directive is one per every 25 for an active-duty unit. So if you get a large carrier, for instance, they'll have 25 to 30 of these people. A smaller unit, if they have a small unit with only about 25 to 50 people, they may have one.

Andersen: And 1,200 people, I said, but 400 to 500 are students on the training squad.

Q: Ah.

Andersen: Okay? I knew you were doing the math there real quick.

Q: Yeah. Smoke was starting to come out my ears.

Andersen: Yes, sir. Yes, sir. I understand.

Q: What is going to happen to your PFMs, your PFMs, as a result of this program? How do they fit in to the picture?

Andersen: Oh, we're going to embrace this big-time.

Q: How?

Andersen: I mean, right now the way I do it is I get up and I train my 12, 15 guys on just -- I'm not talking rocket science. I'm talking about discipline and putting money away and making sure you have a credible life insurance company, and not buying weird cars right outside the base that you can't afford. So I teach them, and then I personally, as CO, talk to every one of the people in my squadron.

Q: But more importantly --

Staff: If we're going to open it up to questions, you might want to stand up there so the mikes can catch the questions.

Q: Okay. But --

Andersen: Petty Officer Nolan --

Nemfakos: I'd like the young man to come up, but going back to your specific question, actually what we're doing is setting the groundwork so they can be more effective. Right now these are people who oftentime get involved with issues and problems after the fact. And what we're attempting to do is to give the young sailor the sound foundation and the understanding so, by the way, when he goes in to talk to this command financial specialist, and the financial specialist starts talking about certain concepts and ideas, the young person recognizes the language and understands what he's talking about.

But before we go any further, young man, it's all yours.

Andersen: This is Petty Officer Pat Nolan. He is a First Class Petty Officer. And he's one of the folks that was fortunate enough to be in a command about 1991 where the commanding officer cared about the folks very much and had a financial management program; and he listened to what he had to say. And he's doing well.

Nolan: Thank you. Once again, my name is Patrick Nolan. I'm a First Class, United States Navy.

Right now I'm 36 years old, I'm married, and I have three children. Prior to coming into the service, I was fortunate enough to have parents that sat me down and they told me the importance of investing and saving my money.

As you can imagine, an airman in the military makes approximately $15,000 a year, so any amount of money you start to pile up while you -- you're going to come into certain situations where you need to extract some of that money from savings.

It was in 1991, like the captain said, that I actually seen (sic) and heard a demonstration where a gentleman was -- he was displaying or giving examples of how much money you can have over a period of time by dollar-cost averaging and by leaving your money in certain funds. And when I seen (sic) that it really opened my eyes.

Now this is nine years since, and at this time right now, with my wife and three kids, I live a very comfortable life. My wife does not have to work. And that in itself -- I think all of you can understand that is a major benefit. I don't have a nursery or a child care provider taking care of my children; I have my wife. And I think in the future that is going to benefit my children more than anything else.

And it's not about trying to make the amount of money that is just going to be an exorbitant amount of money; what I'm trying to do is I'm trying to learn what was taught to me in 1991, and I'm trying to -- granted every week I'm trying to learn a little bit more -- but what I'm doing is I'm building for my future; I'm building for my children's future. And there is nothing you can replace; there's no easement or -- excuse me. When you're at work and you're at ease about how your family is being run and how your finances are, there's no description for that. I can stay at home and understand that, okay, my kids are taken care of, I don't have a problem. If I get called into work and I have to work late, I don't have to worry about getting home early and making sure my wife can go to her work; or I have to get to my second job. I don't have to worry about picking up the kids because I know they're taken care of.

And that's all because of this one time during training in my command, in my squadron, I had a gentleman that was kind enough to show me the benefits of investing. And I think this program is going to help our military more than we can ever conceive. Because if we have the people who are always in a solid state of mind, they're always ready, and they know that everything at home is going to be taken care of, simply because they took a little bit of their money and they invested that, it goes a long way.

And I guarantee that these people, when they start investing $50, $100 a month, they're going to see the benefits of that. And after four or five years, they're going to see those returns on their statements and they're going to become a little bit eye-watering. And I guarantee those people are going to start getting -- they're going to have a lot more emphasis on the quality of life for their family and their kids than they are -- you know, what's important, their family or going out?

So I thank the captain and I thank the gentlemen here who took this program and made it happen, because I tell you, it's going to benefit us all.

Yes?

Q: What kind of -- (inaudible)?

Nolan: AT-1, Aviation Electronics Technicians.

Q: NAC or AW, or both?

Nolan: Naval Air Crew and Air Warfare, yes, sir.

Staff: Let's open it up for questions now, if you want to -- any other questions.

Q: I'd like to continue asking the Petty Officer a question, if I could, or I could wait until after this is over.

Staff: No, no. Fine.

Q: What did this revelation in '91 lead you to do? You talked about what the new one could do, but what did this revelation in '91 lead you to do?

Nolan: It led me to -- what I initially did, I started a $250 allotment from my salary. At that time, I was a second class petty officer, and our salaries are public record. I'm sure you know how much a second class petty officer makes.

Q: (inaudible)

Nolan: Yes, sir, but after two years, I upped that to $500. It's a 15-year systematic program. I've got $500 every month going into this one mutual fund.

Q: That's a mutual fund that it's going into?

Nolan: Yes.

Q: When do you get your second million?

Johnson: He's my personal financial advisor.

Q: Are you a personal financial advisor for your squadron, or --

Nolan: No, sir.

Q: Do you find folks turning to you for --

Nolan: Well, you know, I spoke with Captain Andersen about that, and the problem is, I have people that are coming to me -- there's a lot of people that know that I do financial transactions, if you will, and they come to me. But unfortunately, when I'm talking to them, they're already 16, 17, 18 years into their career. I never get the junior sailors who are two and three years into their career. It's always guys that getting ready to retire and they're, you know, they're looking for some miracle stock or something. Well, I'm sorry, there's not one out there.

Q: They'll be trying to borrow money from you after today.

Johnson: Well, speaking of getting to young people, that's what this program is focused at. For instance, young people coming through school -- (inaudible) -- school down in Pensacola, Florida, they're not permitted to go out and buy a car unless they sit down with a personal financial counselor and do budgeting. And if they get a contract for a car, the car dealers that we've talked to in certain areas have agreed to allow them to look at the contract, take it back, talk with their personal financial counselor so that they can interpret the interest rates and how much it's going to cost them to buy that car. And we've been able to enter into some agreements with several car dealers for that kind of --

Q: Are there -- is this officer or enlisted, Jerry?

Johnson: Enlisted.

Nemfakos: Well, it's enlisted primarily, and that was my primary focus when we started talking about this.

But clearly the Naval Academy brings in young people also, and they're about the same age. Admiral Ryan, the superintendent of the Naval Academy, is also starting a pilot program, where we will work there first, to see what kind of a program we can tailor for the young officers to be -- with an obvious expansion, then, to both NROTC as well as OCS.

It's all about helping the young people establish a firm foundation that will then stay with them the rest of their lives and which we can then supplement, either through leadership training or other means, to help them grow personally.

Q: Are you saying, Charlie, that there's a program now at the Naval Academy, and you're looking to expand it into NROTC and OCS --

Nemfakos: No. No.

Q: -- or is there a program at all three parts?

Nemfakos: In this year, we're going to be awarding some contracts -- early spring -- to develop the course material that we're going to be using. The course material will incorporate some of the things that we already have from Navy Relief, from Navy Federal Credit Union and other sources, USAA, that have already offered some package material that they have.

We will start the pilots then, both on the enlisted side as well as at the Naval Academy, sometime this coming year.

Q: Admiral, could you just clarify? You said it was about $45 million a year that the Navy Marine Corps Relief is providing in loans and grants. I think most of us traditionally think of what the relief does is in a catastrophic situation, a family hardship of some sort.

Can you break down for us what percentage of that aid is for sailors who have made bad decisions about borrowing money or have been taken advantage of by these predatory lenders, as opposed to people who have real emergencies that they really couldn't have foreseen and --

Johnson: Forty-five percent of that number is an unexpected emergency. We define an unexpected emergency as the car engine blows up, and they need to repair the car, and they don't have any money set aside.

About 30 percent of that money is mismanagement.

Q: Thirty-five percent or 45 percent--

Johnson: Thirty percent.

Q: Thirty percent?

Johnson: Nine percent of that money is a pay problem.

Q: You mean pay held up, some -- (inaudible) -- some problems --

Johnson: Pay is miscalculated. It's an automatic disbursing --

Q: Mr. Nemfakos -- (off mike) --

Nemfakos: That's right. That's right.

Johnson: Charlie and I went and we did town meetings to -- as we related, to the new pay account systems. But about nine percent of it is pay problems -- around $3 million a year.

Nemfakos: Yeah.

Johnson: And in breaking down some numbers -- let me break down some numbers for you. About $11 million a year is in vehicle repair. About $10 million a year is in household setup, where a family moves into an area where there's high rates or high rents --

Q: I'm sorry. How much was that again?

Johnson: About $10 million.

Q: Ten million?

Johnson: -- household setup. So -- and think of a family moving overseas, to an overseas area. They have to live out on the economy. There is an insufficient number of government quarters. They have to have a deposit for the rent, they have to have a deposit for utilities, and sometimes it costs them $4,000, $5,000 to get started overseas. So they come to see us, and we try to make arrangements to do a bridge loan till they can get the advances on travel and allowances and things of that nature.

So the loans that we do provide are no interest,, then. So we say, okay, this will allow you to get yourself set up. You can make out an allotment to pay us back over several months, so that they can ease themselves into a household setup. We do not pay down payments on automobiles, for instance. We don't do that. We don't get into the supporting purchases of furniture or trying to introduce more debt into the family. We try to help them to eliminate the indebtedness. And then we also counsel them. Every one of our clients, we sit down and do a budget with them. So we say, okay, this is settling the immediate need, but what's the long-term solution? And that's where we get into some recommendations of how they can start setting aside some money for savings.

Nemfakos: But more -- most important of all is that right now we're in the process of a dramatic change. When you look at the issue of the thrift savings plan, as an example, you're a young person -- when I was that age, every penny I could get my hands on was gone inside of a few days. I don't think the young have changed that much. There needs to be an understanding of why this is important.

We're going to issuing travel cards to 18- and 19-year-olds, and the travel cards allow them to make purchases. There needs to be an understanding of the dangers that are involved there. It took me many, many years -- my wife would suggest that I still haven't learned the lesson -- to understand that just because I have a credit limit doesn't mean that I ought to go ahead and use it.

We are -- we are introducing electronic commerce in the context of purchase cards where they can go and make purchases for their ships and squadrons. Those have no limits and, therefore, can also be abused. It's important that people understand the consequences of all of these changes in their environment.

Sir?

Q: Have you also changed the pattern on how people make purchases, at even the military exchanges, with much more emphasis now on deferred payment plans, credits like that?

Nemfakos: Sure. You're seeing commercial practices across the board in almost everything that we do. I'm -- in my life as the comptroller, I'm seeing commercial practices coming into government finance. Where in the old days we used to say, "Ah, those commercial standards are great, but we're the government and we do things differently", increasingly we're seeing commercial standards being applied.

Well, all of the entities inside the government are starting to see the same kind of thing.

Staff: We've got a question over here.

Q: Yeah, can you list us the specific subjects that you're going to go over in the training?

Nemfakos: God, am I glad you asked that question.

Let me -- and remembering now what I said about this being a multi-part thing, but in the first; the foundation setting -- on the first day we're going to get into ethical financial behavior, the payroll system, understanding the leave and earnings statement, developing a spending plan, what banking and financial services are available and how to us them, buying on credit, buying a car. And you'll notice the distinction there because it is a very real distinction. They will have homework assignments. The first homework assignment is to literally -- evening homework -- go out and buy a car, and apply then the lessons they will have learned.

The second day consumer awareness, insurance, cost-comparison factors -- the point that the captain made with regard to the young sailor who was able to actually improve his standard of living just by being a better shopper, official government travel; it's a problem -- I recently had to go through a major exercise so we could settle our accounts with the Bank of America who's our credit card issuer -- financial planning for deployment; Admiral Johnson's point -- the 18, 19-year-old that is just getting a sizable amount of money in his pocket and thinks it's discretionary spending really needs to understand that sometime in the near future he's going to have a need to lay out some of his own money as he makes a transition -- legal issues with regard to financial -- personal financial management, the resources that are available -- and those resources then are the command specialist, are the -- what I will call the backbone information reference system that's web-based, investments, savings, thrift savings plans, and finally an exam.

And the purpose of the exam is not a pass/fail kind of thing, the purpose of exam is for purposes of immediate remediation. So it's going to be 100 percent pass rate but it's going to give the professional instructors teaching this course an immediate recognition factor of where did the instructor miss the boat, because the young people will absorb this like sponges. Where did the instructor miss the boat and what does he have to do, both for the individual but then as a continuous feedback loop? So, that's it.

Now, in addition to that, remember what I said about we're going to have a continuing program at every stage of their career in the leadership context. So not only do the more senior petty officers and chiefs grow, but in addition, they develop the skills, so like the young man here, they can help their shipmates when they have questions and they have problems. The important thing is to get it before it happens.

Q: Back in the, I guess early '80s, maybe late '70s, there was a movement in a lot of states to get rid of interest rate caps that a lot of states had imposed; to just basically deregulate the financial services industry. How much has that added to your problems; the fact that these banks and lenders can charge any rate that the market will bear, as opposed to having some state regulation? And are you trying in any states where there's heavy concentration of the military, like California, Virginia, to see if limits can be put back on?

Nemfakos: Well, I will tell you first, only because I'm a bigger analyst than he is, we don't really have hard data. We don't capture that kind of data. But having said that, we have an enormous amount of anecdotal evidence. And Admiral Johnson, earlier, talked about the efforts in the states like Florida --

Johnson: Let me give you an example. One of the states where you have a high concentration of Navy and Marine Corps, I've written the attorney general and I gave him an example of the contract arrangement. It was 392 percent APR. So there was -- a $300 cash transaction, the young Marine wrote the check for $350, post-dated it, and gave it to the fast-cash place and they got the $300, and then two weeks later they executed the check. Now, a couple of things happens when they execute the check; sometimes there's insufficient funds to cover the check at $350, so they go back and renegotiate and roll it over and pay the interest rate again and again and again. And in their best practices, most states will roll it over only four times. But then what they do, they say, okay, we'll accept it as payment, and then reissue and start all over again. There are two big banks that fund and support these things.

The state of Virginia, for instance, it's against the law to have fast-cash lending at a high APR. But a check-cashing place uses a bank contract from Eagle Bank in Pennsylvania, and that contract, then, is used by a check-cashing place in the state of Virginia; it's an out-of-state banking institution. So I said, you know, this is a big problem.

I went to see the Senate Banking Committee and I went to see the House Banking Committee and said you need to control the ethical standards and the usury laws in the state banks at a federal level.

And at the local level, I've asked the Military Affairs Committee of the Chamber of Commerce to address the issue by two factors; one, capping the interest rate at perhaps 30 percent, or prohibiting the use of a personal check as collateral for negotiating a loan.

And we're not very popular with those institutions, but they are really targeting military families because they're right outside the gate, and we know they are. So if we can get support from the military commander, that's very influential in the local community. Your question was, it's hard to regulate these because each state has different state laws.

Andersen: If I could piggyback on that. Every time one of my sailors, we find out about this and we can help them with Navy Relief, I know that I've got nine to 10 others out there who are doing this who know no better. They're getting in trouble because they don't want to be -- just have a black mark on their record. And these are great guys that just don't know any better because they don't want to have financial mismanagement affect their career. So if we can educate them about this stuff, they won't fall into that trap.

Johnson: And that is the key.

Q: You're telling me that, as educated as your outfit already is based on what you've done yourself, you still have nine or 10 people making mistakes.

Andersen: Yes, sir. Right. I've got so many people, I've been trying to run through these lectures and get done and get out to them, but I have a constant influx of people in and out, students, 400 at a time that come in and out within a year. But still, I've been there about a year and I've been trying and it's starting to spread and it's getting out.

Nemfakos: But as wonderful as that is, we've got 55,000 to 60,000 young people coming into the enlisted force every year. And what we're doing is we are now reaching out and aggressively touching, not for two hours or four hours or six hours, but for two solid days, every single one of those young people, and then we are giving them the continuing tools to use as they progress with their life. Is that going to stamp it out? No. People are still going to be people.

Q: So you're doing more or less what schools and families used to do.

Nemfakos: I don't want to characterize that that way. I mean, I think my dad -- my dad was a physician, so certainly a well educated man. I think he did a great job as a father. And I've got to tell you something: I was terrible dealing with money. Isn't that a nice thing for the comptroller of the Department of the Navy to say? But I was terrible.

Q: On those lines, you said $45 million a year, 70,000 cases each year.

Now some of the sailors, I think, might wonder if this is a matter of personal financial management, in most cases, or just not having enough money to start with. Is that --

Johnson: A little bit of both. But we took the statistics that we have for the cases of bankruptcy that people that -- when they come in and we do a budget, first of all, we look at the exemptions they have, and we try to get them the best benefit if they have children and dependents. So many times, working the leave and earnings statement, we can get them an extra hundred dollars or $200 a month just from withholding advantages. They're uninformed about that.

We qualify them for WIC, the women and infant/children program. If they're qualified, we get them into the food stamp program. So we do all that as a part of the solution to the problem.

And then we've taken the statistics that we have had, and we've provided that information to DoD and to the folks that were working the committees, personnel committees, for the pay raise this past year. So they knew the letters of indebtedness, they knew the numbers of bankruptcy, they knew the numbers of people that we had that were in the -- the demographics have changed in the military. The people are getting married younger, and they start a family earlier, and they have more dependents than you do on the outside. So we provided that information to the committees when they were viewing the circumstances and all the information that was coming out about the requirements for a additional pay and allowances.

Nemfakos: But the important thing to remember is that regardless of whether you're getting paid enough or not enough, you still have got to be prepared to accept the responsibility of your own actions. And what we're attempting to do is to help our young people do that.

As Admiral Johnson says, we've had the conversations with the Congress, and as a matter of fact, the Congress of the United States for a couple of years now, that I'm aware of, has been very encouraging for the Department of Defense to start to do more in this area. So I don't think it's an issue of a lack of awareness. I think it was a matter of making the commitment, making the resource allocation decision that this really was very important and we needed to, in essence, divert resources from something else to take care of this. That's what we've done. We're very proud of it. We think it's the right thing to do for our young people. We think we are going to see benefits both near-term and long-term, and we just wanted to get the story out.

Staff: And I guarantee you that any of these folks up here will be available for follow-up interviews. We'll just take one or two more questions now, if there are some.

Q: This is going to provided at "A" school?

Nemfakos: Primarily.

Q: What about folks who don't go to "A" school?

Nemfakos: That's why I said "primarily." It's going to be provided to everybody.

Johnson: (inaudible) command to the A-schools. Last week, I was down talking to the chief of Naval Education and Training to put it in all schoolhouses, in the leaderships training, curriculums, corporal school and NCO academy for the Marine Corps.

Q: But I think the point is well taken. I think of the Navy, you have 35(000), 40,000 kids who don't go to "A" school, at least not right away. Where are they going to get the two days? You have them captured at "A" school.

Nemfakos: One of the things that we will be working through over the next six months as we get to the pilot programs is identifying the specific places where we can capture those who aren't going to immediately transition to A-school. The program is to capture all of the young right away.

Staff: One of the things we do -- I am from the director of Naval Training and Education. Even if they don't go to A-school, they get three weeks of general apprentice training. It's at that point that we'll get this financial management training to them. So everyone goes.

Q: Are you making that -- you're making that a definite statement? You're going to -- (inaudible)?

Staff: Everyone goes to follow-on training, and our intention is that we'll administer this program at that point, as well.

Staff: I think they're just saying that's one of the leading candidates there. I don't think that they've hammered out every detail.

Nemfakos: No. We haven't hammered out the details. We're still in the process of doing that. The important point is if we bring 57,000 young people in next year, 57,000 young people will be exposed to the two-day training. No questions, no ands, ifs or buts; 57,000 young people will be exposed to the training and we will make sure that the training has taken before we allow them to move on.

Thank you.

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