Do your clients take out payday loans?

Probably not. Most people know these high-interest loans can lead to financial trouble.

But many of your wealthy clients might be applying for something even more dangerous—an overdraft.

A payday loan requires a client to find a lender, venture into the location, and fill out an application. Because of all these steps, your client will likely stop, realize the stakes and back out.

Read: Canadians in denial on lasting debt

But it’s much easier to get sucked into buying overdraft protection A wealthy client can simply call her bank and say, “Yes, give me the money.”

An overdraft is the financially stable client’s payday loan.

The numbers illustrate the true expense. Typical interest rates on overdraft are 21.5%, plus a $5 fee (at least). On $100, that’s $6.79 after one month.

The same amount borrowed on a credit card with a 19.9% interest rate would be only $1.65 after a month.

But your clients are well educated and gainfully employed, so they shouldn’t need the overdraft, right? Wrong.

Income, financial literacy and education levels have nothing to do with the likelihood of using an overdraft, finds new research out of Dartmouth and University of California Davis.

In other words, being smart and having money doesn’t equal smart financial behaviour.

Read: Rich clients may not be smart

By explaining the cost of overdraft, people use it less: “Within a month, taking an overdraft-related survey reduces the probability of incurring any overdraft fee by an estimated 3.7 percentage points on a base of 30%,” say the authors.

So by simply drawing clients’ attention to an overdraft, it can improve their financial behaviour. Talking about overdraft is a great place to start your debt and cash flow conversations.

Read: Canadians need help with debt goals

Here are some questions to ask:

Do you have overdraft protection on any of your bank accounts?

How much overdraft protection are you approved for?

Do you know the interest rate on your overdraft protection?

Do you have an additional fee for having used your overdraft protection each time?

Have you ever paid overdraft fees? How much were they?

Are any of your accounts overdrawn now?