Avoid overdrafts by playing it safe

Now, more than ever, college is about learning how to manage money.

Thank goodness you have at least four years to get it right.

I’m a parent of a sophomore student, so my daughter and I have been through the lessons of the first year.

One specific nuance of money management came up in conversation after Christina Rexrode of The Charlotte Observer wrote about bank overdraft changes on July 26. The article, which focused on the idea that the overdraft fees could soon face the same kind of scrutiny that credit-card fees have faced, pointed out that young adults ages 18 to 25 were the most likely to overdraw. 

“But I use online banking,” you say. “I check my balances and get email alerts every day. I check my balance on my phone before buying something.”

Sorry, students, it’s not enough. Tiny nuances will still get you if you play too close to a zero balance.

Online banking, mobile banking and email alerts are helpful, but they can give students and parents a false sense of security. Bank transactions do not yet reflect real time, so it’s important to use the time-tested techniques of keeping track of purchases or leaving a cushion in your account.

And yes, it happened to my daughter during freshman year. And it happened to me at the University of Georgia in Athens almost 30 years ago. Here’s why it still happens, using some simple math with round numbers: 

Let’s say you have $30 in your account on a Monday. You make a purchase at Student Stores for $20.

On Tuesday, you make a purchase on campus for $5.

By Friday, you’ve forgotten your earlier purchases because it’s been a busy week of studying and meeting new people. You wonder how much money you have, and you check your online banking on your phone before treating yourself and a friend to coffee.

The account says you have $25.

You might have a gnawing feeling that’s something is wrong, or you might wonder if your parents transferred some money, or you just might think your earlier math was wrong. After all, the bank is the expert, and it says you have $25, right?

Besides, it’s hot, and it’s Friday, and you and your friend really want iced coffee.

You spend $10 on the drinks (I’m rounding numbers, remember), so you do the math and assume you now have $15 for the weekend. It’s slim, but doable.

Saturday, you eat out with friends on Franklin Street and spend $10.

Then comes Monday.

You check your balance.

NEGATIVE $85.  

How did that happen?

On Friday, when you checked your balance and saw $25, your purchases from the previous Monday had somehow not been posted yet, or sent in from the store to the bank. Later that day, however, the $20 purchase from Monday and the $5 from Tuesday were  posted to the bank, ($30 minus $25 minus $10) sending you to a negative $5 balance, and then the bank imposed a $35 overdraft fee. Next, your $10 meal on Saturday sent you to negative $50, and the bank imposed another $35 overdraft fee. 

1. Call Mom or Dad for an emergency infusion, and promise to leave a cushion in your account or keep track of purchases in the future.
2. Call the bank. Ask for an explanation. Negotiate for a one-time forgiveness of the overdraft fees. It’s worth trying, and it worked for my daughter. Once.

1. Make sure all accounts have overdraft protection before the student goes off to school.
2. Bail the student out. If you do this once, you might have to do it again.
3. Don’t bail the student out. Let them work it out with the bank and manage their own finances. If you do this, your student likely won’t go through the pain again. Or at least not too many times.

It’s a painful reality, but shows some worthy lessons: The bank and retailers are not perfect. Mistakes can be made, and delays can happen in the posting of debits. Double-check the math of the bank, and your own math. Even with all our new tools of online and mobile banking, overdrafts can happen. And they’re costly.

Learn now or continue to pay. 

Andria Krewson is the mother of a UNC sophomore and a journalist from Charlotte.