The Money Question: Do You Want Overdraft Protection?
Thanks to Mountain View High for inviting me to their AVID class last week (and for the next 7 Thursdays) to teach personal finance. Today’s topic was “How To Manage Your Checking Account.” I started with the Bank role play activity to highlight the questions that students should be prepared to ask PRIOR to opening an account. Asking the right questions has to be the foundational skill we need to develop in any financial education course.
The students responses included the importance of FEES with several discussing the pain that they felt when overdraft fees hit their account. During the role play, I asked the “money question” that all new accountholders will be asked when opening an account: “Would you like overdraft protection?”
Clearly there was a lot of confusion among the students about what happens when you say “Yes” to that question versus “No.” In fact, when I later asked in a Polleverywhere, almost 40% indicated they weren’t sure if they had overdraft protection. I got a lot of quizzical looks with reactions like “Can it really be bad to have “protection?” Chalk one up for the bank product naming consultants. They have chosen a phenomenal product name…to confuse consumers.
In order to elucidate this concept, I created this simple example on the fly. I used two students from the class, Rob and Marcos, and had them heading to Taco Bell for lunch (their choice, not mine). In my scenario, neither kept a close eye on their account and had only 5 dollars in their checking account when they entered the restaurant. Here’s the chart I drew:
|Overdraft protection (Y/N)||Yes||No|
|Balance in checking account?||$5||$5|
|Cost of Tacos||$10||$10|
|Balance in Account post-tacos|
I walked them through each example and took student responses as to which student would get their taco (and fees that might cause some indigestion) and which student would go hungry. With more planning, I would have had the students complete the last three boxes in the chart and then discuss as a class. End result: this simple example effectively explained the impact of overdraft protection.
Want to learn more about checking account fees? Check out this NGPF Data Crunch: What Are the Trends With Checking Account Fees?
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.