In discussion with FB over at Fabulously Broke in the City, I realized there’s a story I haven’t told you guys about my idiotic financial days. It’s a story I see repeated many times with people new to finance, and it really comes down to not having the financial education to know any better.
Just to make sure we’re all on the same page, hot checks refer to checks written and then returned for insufficient funds, or those that are paid by the bank, but they charge you a fee for it. In reality, anytime you write a check with which there are not funds to cover it, it’s a hot check. So, all you floaters out there, technically, you’re writing hot checks, you just haven’t got caught yet.
Anyway, when I got my first bank account I didn’t have a very good banker. Either that, or she just didn’t care. She opened my account with very little talking, then handed me my stuff and told me I’d get my checks within 7-10 business days. No other explanations on fees or anything. I was expected to read the disclosures and that was that.
7-10 Business Days Later
I get home from work one day to find that I had my checks. Excellent! Yeah, not so much.
Somewhere in my head I got the idea that as long as I had checks, I had money to spend. So, I began writing check after check. Anywhere that took a check, I was writing one. The trouble was, I wasn’t keeping a register or any kind of record of spending. I also wasn’t checking my account for balances because I just didn’t know that I was supposed to.
Imagine my surprise when I go in two weeks later to deposit my payroll check and I get my balance as $350 less what I had deposited. Confused, I asked the teller what was going on. She explained that I had overdrawn my account and whenever I make a deposit, the bank automatically takes funds owed to them out. No one had ever told me this is how it worked, so naturally I was upset. The teller sat me down with the lady who helped me open my account. She explained that I could overdraw my account by writing checks. If I did that, I’d be charged a fee and the funds would come out of my next deposit.
I just didn’t understand. See, the problem was that I still believed I had money. After all, I still had checks. And yes, I was pretty financially ignorant before I got into banking. Some of you may be thinking I’m a total moron, but at this point, I really just didn’t know. I had no clue!
But, back to my story. I left the bank feeling confused and a little irritated with them. I felt like they should have done a better job protecting my money as, in my eyes, this was somehow their fault. I still had money! So, I went home and pulled out the statements. I sat down and looked them over, trying to figure out where the bank made the error so I could go back and demand my $350 back. As I looked over the statement, my eyes went cross-eyed. I literally had no idea what I was looking at.
I went back to my bank and asked them to explain the statement to me. The lady who opened my account said they would be happy to help me balance my statement and register, but that it was $25 an hour with a one hour minimum. Not keen to give them more money, I said forget it and walked out. I continued on my way, writing checks as I needed things. Two weeks later, when I made my deposit, they took $500 out of my check. I was quite beside myself with anger and demanded to speak to the branch manager.
So, we go in and sit down and the manager very calmly asks what’s wrong. I explain that they’ve taken $500 of my money and that I want it back. They took $350 last time, but I was not going to stand for them taking $500. She looked over my account, printed out a statement, and then sat there with me, going over everything line by line. She pointed out each check, then asked if I had written the checks. I said that I had. By the end she tallied up my checks written and then what I had deposited. I had spent $850 more for the month than I had brought in.
I was still confused. I mean, I understood her math and all, but I just couldn’t get around this idea that if I had checks I still had cash. Seeing my confused expression the manager asked what was unclear. I blurted out that I still had checks. She didn’t understand what I meant, so I told her that I was under the impression that if I had checks still in my checkbook, I had cash. Man, she must have thought I was so stupid! But, in reality, I hadn’t been financially educated and they didn’t exactly offer up a lot of information, either.
The manager explained that checks were simply a promissory note, not cash. Just because I had some left over, didn’t mean that I had the money in my account to cover them. She explained the importance of having a check register and writing down what I’ve spent. She spent 10 minutes walking me through how to balance my checkbook (no fee!) and explaining the ins and outs of using checks. By the time I left, I felt much more confident in my understanding of checks.
Need a Fresh Start
Unfortunately, I ended having a several more checks come through after our discussion – all written prior to the discussion. So, when it overdrew my account, I knew it was going to eat most of my check…I think the total that time came to about $425. I decided I needed a fresh start. So, instead of depositing the money, I went to another bank and opened a new account. One day, I get a letter from the old bank informing me that I now owe them $560 and if I didn’t pay soon they would send it over to a collection agency. I didn’t pay, so to collections it went, and there it stayed until a few years ago when I finally got it all paid off.
Fortunately, the experience has taught me a lot about writing checks and what it actually means to hand someone that piece of paper. Unfortunately, it cost me $1400+ to learn it. So, for the ones new to finance, having checks left over in your book DOES NOT mean you have money to spend. A check is your promise to pay someone the agreed upon amount, nothing more. It is not indicative of the amount of money you have, by any means.