KAISERSLAUTERN, Germany — Cost-of-living allowance paid to servicemembers overseas can fluctuate from pay period to pay period, but results from an annual survey of U.S. spending habits are also factored in, and this fiscal year, coupled with the dollar strengthening against the euro, COLA will dip noticeably this month for many U.S. servicemembers stationed in Europe, according to military officials.
Starting with the Oct. 14 paycheck, the overseas cost-of-living allowance for military members in Germany will, on average, be $40 to $70 less, said William Gordon, U.S. Army Europe’s Germany country coordinator. This is the result of an annual survey of consumer spending habits in the United States.
If the euro doesn’t rebound, some servicemembers could lose $100 or more of tax-free COLA by the end of the month, Gordon said.
The cost-of-living allowance, an income supplement, is designed to offset the higher overseas prices of non-housing goods and services, according to the Defense Travel Management Office.
Among factors driving COLA down for about 250,000 servicemembers at 600 locations overseas, as well as Alaska and Hawaii, are the spending habits of military members stationed in the United States, as tracked by an annual consumer survey, U.S. military officials in Europe said.
New data collected by the U.S. Bureau of Labor Statistics show that, in 2010, servicemembers in the States bought less expensive items, opting for a used car instead of a new one, for example, and spent less of their disposable income, according to military officials. That’s money left over after paying for housing, taxes, life insurance and contributions to such things as retirement plans and savings accounts. Families making more money generally have more spendable income.
Military members’ buying habits reflected those of the American public at large, as survey results also showed that the average annual expenditures per consumer fell 2 percent in 2010, following a decrease of 2.8 percent in 2009, according to information from USAREUR officials.
“It shows people are buying goods and services with less money; they’re shopping at Wal-Mart and Dollar stores,” Gordon said.
Spending habits of military members stateside affect overseas COLA because the tax-free allowance is intended “to equalize purchasing power,” Gordon said. A drop in spendable income stateside can spell a similar annual decrease in COLA.
COLA can also fluctuate every two weeks based on local currency rates compared to the dollar. Because of that, the Defense Department recommends “that fixed expenses such as rent and car payments should be based on what a servicemember can afford without COLA,” a release from U.S. Air Forces in Europe said.
The amount of COLA a servicemember receives depends on his or her pay grade, location and number of dependents.
To illustrate the current decrease, Gordon uses the example of an E-6 with three dependents and 10 years of service assigned to the Heidelberg area. For the second half of September, the member’s COLA was $383.85. For the first two weeks of October, it’s $324, according to the Overseas COLA Calculator on the Defense Travel Management Office’s website.
“The dollar has increased about 5 cents (against the euro) in the last 10 days,” Gordon said this week. “If the dollar continues to get stronger, we could have another drop.”
The cost of items on the local economy and on base, and where servicemembers shop can also influence COLA levels.
Troops’ shopping habits are tracked every three years through a living pattern survey, gauging, for example, how often servicemembers shop at the local mall, at the base exchange or use mail order. If the data show typical members spend 50 percent of their income on the local economy and 50 percent in dollars, on base, then only that portion of COLA based on local purchases is changed for currency fluctuations, according to the Defense Travel Management Office. That means, if the value of the dollar against the local currency falls 4 percent, COLA would be increased 2 percent.
The cost of about 120 goods and services overseas is tracked by a market basket survey, which is conducted at certain times every year by local military commands. Those costs are compared with average prices in the continental United States, and COLA can be adjusted annually as a result, according to military officials.
To see how much your COLA is changing, go to the online overseas COLA calculator at: https://www.defensetravel.dod.mil/site/colaCalc.cfm