Monday, September 12, 2016

Train Kids To Avoid Overdraft Fees By Dinging Prepaid Declines

Mom Decline Fee

One of the things that makes prepaid cards such great financial training wheels for kids is that good ones don’t charge overdraft fees under any circumstances — not even on recurring automated billings like many bank debit cards do. With the typical overdraft fee weighing in at $34, that can be a huge savings for inexperienced cardholders.

But if kids never experience the pain of overdraft fees on their prepaid cards, how do they learn to avoid them when they transition to traditional checking accounts as adults?

That’s where the Bank of Mom/Dad steps in.

Whenever your kid gets a decline for insufficient funds, assess your own Bank of Mom/Dad overdraft fee. Maybe start with $3 instead of $34. If the habit persists, you may need to ratchet it up until you find the right pain point to curb the bad habit.

If you’ve set up a family banking system with your prepaid cards, you can ding your kid immediately with a card-to-card transfer back to your parent card — assuming there are sufficient funds to cover the fee. If not, record an IOU on a sticky note, the fridge, or a spreadsheet. Then, the next time a transfer is due for an allowance, chore, or odd job payment, deduct any pending fees first.

You won’t be raking in $5.1 billion in overdraft fees annually like America’s three biggest banks, but at least your kid won’t be feeding that beast later as a young adult.

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