Kara McGuire: Money drain

It was late Friday afternoon. With a thin envelope from my bank in hand and a sick feeling in my stomach, I sped to the nearest branch to beg them to reverse about $100 worth of insufficient funds fees. Fresh out of college, I couldn't afford the charges and was frustrated and confused about how I had screwed up to begin with. Fortunately, the banker took pity on me and reversed three of the four fees.

Flash forward to today. Last week, I wrote a story about a Center for Responsible Lending report that found that 18- to 24-year-olds pay about $1 billion per year in overdraft fees. I was relieved to find that many of the students I spoke with about the findings had never overdrawn their accounts. Some others, such as 21-year-old Nadia Labyad, a senior at Hamline University, have tried to no avail to get their banks to reverse some fees. "I'm fine with one [fee], but six?" she complained.

But I was surprised to hear more than once from college professors and financial counselors that many students today shrug off their errors as if it were an unavoidable cost of banking. Credit-card debt and student loans are the financial focus for the campus crowd.

But to me, the fact that overdraft fees aren't much of an issue is an issue. This is the time when young adults are developing lifelong financial habits. If they accept hefty fees as an inevitable expense, financial institutions will be able to nickel-and-dime them for decades.

Banks argue that this isn't their problem; consumers must take responsibility for their accounts and keep track of their balances so they don't incur fees. I agree. Parents should also be teaching their kids decent banking habits.

But I also think that banks should help their customers of all ages. Otherwise, it seems that banks are gladly reaping profits from their customers' ignorance and irresponsibility. Banks could simplify the lengthy manuals explaining how checking accounts work, mandate education for customers who slip up, and notify account holders who are about to enter the red. I don't know about you, but I'd leave the latte at the counter if I knew it was going to cost me $33 in fees.

If you're in the camp that believes that overdraft fees are no big deal, just stop to think what $33 would buy you: 33 iTunes downloads. Two baby-doll T-shirts from Target and something from the clearance rack. A decent ticket to a Gophers football game.

To avoid overdraft fees:

Shop around. Most consumers choose the most convenient bank rather than the one that has the best products and customer service. But you deserve both. Comparison shop for the lowest fees, most advantageous accounts and plentiful cash machines. With online banking, branch location doesn't matter as much as it used to, and some banks will reimburse customers for ATM fees.

Go online. Online banking makes it easier to keep track of your account balances. But make certain that you understand your bank's online accounting policies. Also, remember if you have transactions that have yet to clear.

Track your cash. I know that writing checks is so 20th century, but the check registers that accompany them can be handy for jotting down your purchases. If you refuse to pick up a pen, there are some online services such as Mint.com that will e-mail or text message you when your checking account balance is low or you are slapped with fees.

Keep a cushion. "Most students are playing it close to the edge," said Cathy Solheim, a University of Minnesota associate professor of family and social science. As hard as it can be for those who have limited funds, try to keep $100 in the account at all times so that that late-night pizza won't burn you.

Consider overdraft protection. The report recommends that young adults should select a bank that will link a checking account to either a savings account or a less expensive line of credit.

Ask for forgiveness. "It's OK to be proactive," Augsburg College financial aid counselor Carly Eichhorst said. If you've never had an overdraft before or have a good excuse for why it happened again, ask the bank to waive or reduce the fee. The worst the bank can do is say no.

Kara McGuire writes about personal finance. Call 612-673-7293 or send e-mail to kara@startribune.com.