Conquering the Negative Bank Balance

by Diana Drake

During his four years of college, Daniel D. became all too familiar with a dreaded financial concept: overdraft. Put another way – his bank balance had a nasty habit of dipping below zero. “Before I had my mobile banking app, if I was at school I would keep swiping my debit card until they gave me that decline notice,” says Dan, 22 and a recent graduate of La Salle University in Philadelphia, Pa. “It would hit negatives or I would try to buy something that cost more than I had and that’s how I would know I was getting really low on cash.” Sometimes he would check his balance and forget about a recent transaction that wasn’t yet reflected on his account – so he would keep swiping and spending. “The lowest I’ve reached is negative $80,” says Dan.

Following bailouts from parents and the sting of bank overdraft fees (as much as $35 each time you spend more than you have in your account), he is trying harder to avoid that negative bank balance – but even he admits that he has a lot more to learn. “I’m still overdrafting once a month,” says Dan, who is currently working for a tuition and student loan management company. “It’s awesome at first to be paid every two weeks, and then right as you get your next paycheck you have no money. I’m a spender. I need to save more.”

He’s not alone. A common refrain from Dan’s friends at college when referring to their bank balances: “I’m negative, man. I couldn’t help you if I wanted to.”

In fact, America’s three biggest banks — JPMorgan Chase, Bank of America and Wells Fargo — earned more than $6.4 billion in 2016 from ATM and overdraft fees, according to an analysis by CNNMoney that was verified by S&P Global Market Intelligence. This was nearly $300 million more in ATM and overdraft fees than they earned in 2015.

Teens and twenty-somethings are among the worst overdraft offenders. “The main issue is that many young people have a hard time visualizing their future,” says Kent Smetters, a Wharton professor of business economics and public policy who also hosts the Your Money program on Sirius XM Channel 111, Business Radio powered by The Wharton School. “That leads them to consume more now.”

Add to that the fact that many teens, particularly in the U.S., are “financially illiterate,” says Olivia Mitchell, also a Wharton professor of business economics and public policy, and you have a recipe for bank accounts that regularly see red.

Here are four strategies to help you confront that negative balance and put your overdraft days behind you:

  • Create automated savings so you save first, then spend. “Have your paychecks directly deposited into a higher-yield [one that earns more interest than most] online savings account,” suggests Smetters. “When you need money, you then move money from the higher-yield online savings account — which often can be done for free — to your checking account. The effort involved will help force you to only make transfers when needed.” Smetters adds that if you have access to a 401k retirement account with an employer match, you should have money taken out of your paycheck for the 401(k) to at least get the match. It’s bonus money coming directly from your employer and will double your retirement savings.
  • “Learn budgeting skills!” urges Mitchell, adding that you are never too young to start – and ideally you should start in high school or even sooner. A budget is basically a tool to assess your financial situation. “The goal of good budgeting is to spend less than you earn – and to know what you are saving for,” says Zina Kumok, a personal finance blogger who contributes regularly to KWHS. Kumok, who paid off $28,000 in student loan debt in three years by getting smart about money management, advises novice budgeters to list your goals, write down all your expenses, make a plan, and talk about it with others to hold yourself accountable. Read Kumok’s Budgeting Tips to Help You Take Control of Your Money for more details. Check out the related links and related KWHS stories in the toolbar to the right of this article for lots more budgeting basics resources.
  • Talk money with your parents and figure out the best plan for you. Since college or wherever you land after high school ushers in independence, make sure you’re ready for the financial decision-making that comes with it. If not, you have options, especially with the growth in financial technology. If you share a bank with your parents, you can link your checking accounts so cash transfers take only a few minutes when you get into a bind. If you don’t share banks, then consider a P2P payment service like Zelle or Venmo, which lets you send money online or through a mobile app. If overdraft is your middle name, then a prepaid debit card like Bluebird by American Express may be the best option for you. This will limit your spending to only what you have – no overdraft services provided.
  • Speaking of overdraft services, buyers and spenders beware. If you have a checking account with your bank, be sure you understand what happens if you spend more than you have in your account. If every attempted overdraft costs you $35, you could quickly get into deep debt with a mere series of swipes. Some banks might even allow you to link a credit card to your account to cover overdraft fees, but that too is dangerous if you don’t have the money to pay off the credit card balance. Financial experts often recommend that you don’t sign up for overdraft protection on your bank account or you opt out if you already have it. As NerdWallet personal finance columnist Liz Weston recently told money expert Jean Chatzky: “Opting out means that if you do try to buy something your balance doesn’t cover, your debit card will be declined — but a moment of embarrassment at checkout is likely worth the high-fee alternative.”

Related Links

Conversation Starters

Do you agree with Kent Smetters’ suggestion that many young people have a hard time visualizing their future? Why or why not?

Does your bank account often enter the red zone? Share your story with other KWHS readers in the Comments section of this article. Why do you struggle to maintain a positive balance and to save some money?

One of the tips in this article is to talk with your parents about money and your capacity for managing your own finances. Far too often money is a taboo subject at home — it should be discussed, but instead it is overlooked or even avoided. When was the last time you had a conversation about money at home? What did it entail? If you haven’t had one, do you think you should? How would you start the conversation?

25 comments on “Conquering the Negative Bank Balance

  1. Seeing a bright, ugly red number on a bank balance portfolio is probably just as scary to me as realizing I’ve run out of Doritos.

    I never intend to have a bank balance below zero during my lifetime. Yes, no doubt it’ll be a challenging goal, but at least I’m armed with one essential tool, and I think that’s all I’ll need to be successful in my pursuit: Simplicity.

    If you have nothing to do on a Saturday night, don’t call your friends to go on a big shopping spree in a mall or to go out to eat to get stuff you don’t need. As tempting as it seems, I like to look for the beautiful, yet simple things in life that won’t cost me a dime yet are fantastic for my health. Going for a jog or walk in a park, calling a friend, working out, responsibly surfing the internet, watching educational videos – these things all cost little to no money, yet can be powerful enough to actually INCREASE your bank balance – you’ll adopt habits like a strong work ethic, self-control, good mental health, useful knowledge, and countless others.

    See, as a little kid, when I used to be obsessed with buying toys that I’d never use a week later, I realized that something needed to change. We all have this “little kid” instinct lingering around somewhere inside – but focusing less on the materialistic, and more on valuable skills, knowledge, and experiences is ultimately what’ll increase that green number in your bank account exponentially (as it did for me) as well as your happiness. Give it a try!

  2. Great insights, Aneesh! Life and money are about choices, and sometimes we have to choose based on our future security, rather than our current gratification. It’s the old lesson of wants vs. needs when it comes to money. I especially like your point about that little kid instinct. We are all dazzled by cool, shiny, fun stuff, and part of becoming a smart money manager is to sometimes just say no. It’s hard! But so worth it when you have the peace of mind that comes from a padded savings account.

  3. I do agree with Kent Smetter’s opinion because young people don’t really get paid enough even to last the week or two weeks that their job pays them. Young people need to maintain the money that they are working for so they can make something big out of it. I struggle to maintain money because I spend money on different things that I don’t need but I want it. I save money by spending a certain amount in a certain amount of weeks. Young people need to figure out how not to spend it. People usually spend it on different things that are quite unnecessary. When you make your money, make a limit on what you will spend on it like ” I would spend 50$ this week” and save the rest on something that you actually need that will get you more money or something you’ll invest in.

  4. This is definitely an important article for teens and people in their early twenties. There are so many people my age and older who go into negatives way too often. This is very insightful and and interesting and, in my opinion, will be very helpful for those struggling with keeping their bank accounts in check. These for strategies are important, even for those of us not struggling with money, because we can better focus on how we spend (or don’t spend) and how we spend it. I think it will better help with a reduce in spending among teens and and young adults.

  5. Do you agree with Kent Smetters’ suggestion that many young people have a hard time visualizing their future? Why or why not?

    I personally agree with Kent Smetters’ suggestion that many young people have a hard time visualizing their future because I am a young person and me and my friends often can’t seem to visualize our future effectively. For example, I recently overcharged my bank account without thinking about the repercussions on my future. I believe young people are good a visualizing the immediate future and not the extended future.

    Does your bank account often enter the red zone? Share your story with other KWHS readers in the Comments section of this article. Why do you struggle to maintain a positive balance and to save some money?

    My bank account has entered the red zone once. I had $160 in my bank account and $100 in my bedroom at home. I was at a mall and I saw a pair of $350 shoes I wanted. I thought I would just overcharge my debit card and pay it off with the cash. I did not take into account the overcharge fee. So I actually did not have enough money to buy those shoes at that time. I have now learned my lesson and have maintained a positive balance since then.

    One of the tips in this article is to talk with your parents about money and your capacity for managing your own finances. Far too often money is a taboo subject at home — it should be discussed, but instead it is overlooked or even avoided. When was the last time you had a conversation about money at home? What did it entail? If you haven’t had one, do you think you should? How would you start the conversation?

    The last time I had a conversation about money was last night when I bought a bicycle. I spent $500 on a bike so I could put my money to a productive use. I started the conversation by saying that I have no use for this money and I want it to benefit me. My mom then gave me the idea to buy a bike.

  6. The author said that it’s very common among teens and people in their 20’s because young people have trouble visualizing their future. I agree with this. Many young people don’t realize that their money habits now really affect their financial futures.

  7. The habits of Daniel is a consequence of irresponsible parenting. If his parents had to constantly keep bailing him out, why wouldn’t they take his card away or put a limit on how much he can spend a week?

    • I agree with you Tom, Daniel’s parents were very lenient on him. They did not give him any responsibilities as a younger man or help to motivate him to search for and conquer goals. Daniel has not learned how to save his money and keep a savings account. This is mostly in part to lack of responsibility given to him by his parents.

    • I disagree with you because your parents should not be treating you like a kid at this point in time. I feel he needs to learn self control by himself. I think they should stop bailing him out and pay the fees himself so he can learn they he needs to control and manage his spending.

  8. I definitely agree with all of this. Even though I haven’t had any problems with finances yet, I do think that having a negative balance does put on a lot of stress as well as even more money loss. Finances are about choices and you need to choose to save money rather than spending all of it. Also, the strategies described here seem to hold up and offer better choices for spenders that could very well save them from going into debt in the future.

  9. Teens and Twenty year olds are just swiping their cards as much as they can and are not thinking about the repercussion that it has behind them doing that. This is a really bad habit to do and they need to break the habit. It seems like more and more people are doing this because the banks are making millions off of overdraft fees. I feel like reading this article helped me just learn that this is not a good thing to do and that i should not get a debit card, especially in college. But at least this article has ways to break and get rid of these bad habits and to get people out of the negatives. This article is very helpful and informational to everyone. Big red numbers in the bank account is scary. No one wants to see that. I agree with this article very much.

  10. I think this article is a great help to teens. It talks about how the money you start to save when you are young,will benefit in the future. The more spending you do, will hurt in the future.Because what if that spending you just did was wasted.That means that money is wasted. I think teens need to read this article to help them with their money struggles and why they should stop spending and start saving.

  11. It seems to be very difficult getting out of college debt free, but if you cannot remain debt free it is better to not continue to swipe your credit cards and debit cards. If you do attempt to do that you will just dig a deeper hole and have debt piling up. Too many teenagers are continually spending more money then what they have. I think teens should begin saving at a younger age so that they have more money and less debt after doing things like going to college or buying a big thing like a car. If teens do begin saving it could save them lots of money.

  12. Many Teens when they get a job end up not even really making money. They spend it all on stupid things and then they overspend then they owe these banks fees. A lot of teens and kids in their early 20s always seem to overspend. Most kids this age are just too immature to handle money and when they start getting paid they think they have more than they actually do.

  13. Having a negative bank balance is tough and I know that through experience. My parents struggle every day to pay bills and other stuff that we need and most times we don’t have enough money causing the account to go into overdraft. I also march in the marching band and we need to purchase other items, such as tour shirts($15), jackets($65) and shoes ($30). That’s really expensive for one family who tries to make ends meet on a daily basis. This article is very good for teens who tend to spend their money really fast causing their account to go into overdraft, which is never a good situation. It’s better to be in the positives than the negative and be in debt for most of your life.

    • I agree with you Vickie. My dad works all the time and we never see him and he has to support a big family. Times definitely get tough and my parents have to watch what they buy so they don’t spend too much money on something that isn’t that important. This article is good to show teens how hard it can be I have a debit card and if I didn’t have an app on my phone telling me how much money I have left. I would keep using my card and going over the amount of money I actually have.

  14. This article expresses a point that not only applies to me but to other people too. Overspending leads to debt and debt is the worst, banks love when we go bankrupt because they can charge you interest for going in the red. College students, high school students and even parents told to get inn the red on a bank account causing the to go into debt and sometimes leads to bankruptcy. Banks such as Chase, Bank of America, and Wells Fargo charge extra for using ATMs that aren’t theirs, meaning taking out money is still just ass bad as wasting it on useless items. At the same time think it’s great that we get charged for using ATMs that we don’t have to waste money and we fear taking money out.

  15. I do agree with this article, their are bad repercussions to just swiping your card and just spending money. People that work should at least save some of the money that they get and not just go spend it all on whatever. Debt is a serious problem and not everybody wants to be living paycheck to paycheck everyday. At some point in their lives they are going to want to start saving money so that they can do more things.

  16. I agree with the article, because it is important you don’t spend more than what you have. Once teens and people in their early 20’s start making money they go out and spend it all then is left with nothing then they figure just go negative until they get paid or get money again. I have never went into the negatives, but I know a few times my friend has done it and didn’t even care. Not going into the negatives when you struggle is hard, but you never seem to really catch up if you just keep doing it.

  17. This article is very important for teens and people in their early 20’s because Kent Smetters has brought up good points that all teens struggle with. For example,Kent talks about the way teens would spend money and at a young age teens tend to have the idea that once they get their paycheck they must spend it. I know that is a trend for myself because once I have money I would feel like I have to go out and buy what I want but that item that I purchased at the time that I thought was an absolute need turned out to be only a want and my money could’ve been saved or placed on other important purchases that need to be made. I do agree when he starts to talk about teens having a hard time visualizing their future. For myself thinking about the future has also been something that I struggle with; I have my dream goal to what I would like to do as a job but I’m sure of how to get my dream goal/job accomplished. I feel through out our 12 years of school we are only prepared for the college aspect of our future. Teens will have some vision on what they would like their future to be but when it comes other things about the life after high school many will only know what they want to do in college and where they would like to do.

  18. I do agree with this article because being in debt may be the worst feeling. I’m sure people like collage students live on a fixed in come so if they over spend by a couple dollars and don’t account for the money they could get into serious trouble. Managing your spending is a huge part of growing up and maturity.

  19. I personally agree with this article due to the fact that being in debt is the worst thing ever. Having a credit or debit card in some cases may not be safe, you have to be mature and watch what you are spending your money on.

    • I agree with you Alex, debt is probably the worst feeling ever. having a credit card or debit card may or maybe not be the right choice for you. It depends on what kind of spender you are, if you are one that just swipes your card everywhere that may not be the best thing. But if you have a little bit of control over what you’re doing and check up on your accounts every time you spend money you should be on the right track and not have to worry about debt.

    • I agree with Alex being in debt is indeed the worst situation to be in. And that people need to be smarter with there money. Also having a credit or debit card can be dangerous because if u buy a high priced item and you do not have the money to pay your bill at the end of the month you will get charged with interests.

  20. I agree that it is hard for students to visualize their future because we have not experienced many financial situations. I agree that debt is a very hard struggle to overcome, but if you do not reach debt then you will not have to struggle with it. The tips in this article will help many people struggling from debt and help them conquer the negative bank balance.

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