Finance 101: COLA Depends on Unpredictable Factors

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  • By American Forces Press Service
WASHINGTON --  Because unpredictable factors can affect the cost-of-living allowance many servicemembers stationed overseas receive as a supplement to their normal pay, Defense Department officials want servicemembers to be aware the allowance can fluctuate rapidly and without warning.

Tonia Bock, chief of strategic planning for the Defense Travel Management Office, said in a Pentagon Channel interview yesterday that officials are trying to raise awareness that the allowance - known as the COLA - is volatile.

Overseas COLA is intended to equalize purchasing power so servicemembers can purchase the same goods and services overseas as they could if they were stationed in the United States. The prices of goods and services overseas are compared with equivalent prices in the United States.

The price comparison yields an index that reflects a cost of living. If prices in the United States are rising at a greater rate than those overseas, COLA will decrease. However, if prices rise or fall at the same rate, COLA stays the same.

"One of the misperceptions is that it's always going to be there, [and] it's always going to be the same," she said. "But COLA does fluctuate. They see it as $300 one month, $200 another month."

Defense Department officials recently rolled out some new marketing tools to serve as a megaphone for the advice Bock and others are delivering concerning the COLA's unpredictable nature. The gist of that message: plan accordingly.

"One of the reasons we really want them to understand is this does impact their finances," she said. "We don't want servicemembers to make budget decisions based on this amount that comes in their paycheck, because it will change. It will fluctuate."

A safe strategy, defense officials say, is for servicemembers to budget their fixed expenses, such as rent and car payments, based on what they can afford without COLA.

A page devoted to the overseas COLA on the Defense Travel Management Office's Web site includes a full explanation of the allowance and links to a COLA communications toolkit and a COLA calculator. It also contains a link to a video that provides a COLA overview and descriptions of its key elements.

"We value the commitment that servicemembers are providing to our country," Bock said, "and we want to make sure they understand those extra allowances that are afforded to them. "But we don't want them to misunderstand and misuse the allowances."