Have you ever seen people pay for things with small plastic cards? Did you know there are two different types of these cards? They are called debit cards and credit cards. Today, we’re going to learn about what makes them different. This will help you make smart choices when you pay for things.
Financial literacy means knowing how to use money wisely. Learning about debit and credit cards is a big part of becoming financially literate. Let’s dive in and see how these cards work!
A debit card is a small plastic card that connects directly to your bank account. When you use a debit card, you’re spending money that you already have in your account. Most debit cards are linked to a checking account. If there’s no money in your checking account, you can’t use your debit card to buy things.
A credit card is also a small plastic card, but it works differently. It’s not linked to your bank account. Instead, a credit card is like a loan from a credit card company. The company lets you borrow money up to a certain limit, which is the most you can spend. You have to pay back the money you borrow, usually with a payment each month. If you don’t pay the full amount, the company charges you extra money called interest.
Let’s say Frankie Finance wants to buy a new bike for $350 using her credit card. She has to pay at least $15 each month until she pays off the bike. But the credit card company charges 16% interest. If she only pays $15 each month, it will take her over 2 years to pay off the bike, and she’ll end up paying about $70 more because of interest.
If Frankie pays the full $350 right away, she won’t have to pay any interest. She also checks her bank account and sees she has $500. She could use her debit card to pay for the bike, which would leave her with $150 in her account.
That’s a lot to think about! If you were Frankie, which option would you choose? How can you use debit and credit cards responsibly?
We hope you enjoyed learning with us! Visit us at learn.org for more fun and educational resources.
Card Sorting Activity: Create two sets of cards using index cards or pieces of paper. On one set, write different scenarios like “Buying a toy,” “Paying for groceries,” or “Saving for a trip.” On the other set, write “Debit Card” and “Credit Card.” Mix them up and let the children match the scenarios with the card type they think is best to use. Discuss why they made those choices and what they learned about using each type of card.
Interest Experiment: Use play money to simulate a credit card purchase. Give each child a set amount of play money and let them “buy” an item with a credit card. Each week, they must pay back a portion of the money, but they also have to add a little extra to represent interest. This will help them see how interest can add up over time. Discuss how paying more each week can reduce the total interest paid.
Real-Life Observation: Encourage the children to observe their parents or guardians using debit and credit cards during shopping trips. Ask them to note down when each type of card is used and why. Later, discuss their observations in class and talk about the reasons behind choosing one card over the other in different situations.
**Financial Literacy for Kids: Part Five – Debit and Credit**
Have you ever noticed that most people pay for things using small plastic cards? Did you know that there are actually two different kinds of plastic cards used for payments? It’s true! One is called a debit card, and the other is called a credit card. Today, we are going to talk about debit and credit and the differences between the two. This way, when you pay for things yourself, you can do so with financial literacy.
Remember, financial literacy is understanding and using specific skills to manage money smartly. Understanding how debit cards and credit cards work will definitely help improve your financial literacy skills. So, let’s get into it!
First, let’s discuss the difference between a debit card and a credit card. A debit card is a small plastic card that is directly linked to your bank account. This means you use your debit card to pay for things with money you already have. Most often, a debit card is linked to what is called a checking account. If you do not have money in your checking account, you cannot use your debit card to make purchases.
On the other hand, a credit card is also a small plastic card, but it is not linked to a bank account. Instead, a credit card is issued by a credit card company or other financial institution. It is essentially a type of loan. The company that issues you the card is lending you money. Here’s how it works: the credit card company loans you money with a set credit limit, which is the maximum amount you can spend. You pay it back according to the credit company’s schedule, usually with one payment per month. Typically, you have to make a minimum monthly payment on the amount you spend, which is the least amount you can pay back each month to reduce your debt.
Credit card companies also charge interest if it takes you longer to pay the money back or if you do not pay the full amount each month. However, if you pay off your entire credit card balance every month, which is also called paying in full, you will not be charged interest on your purchases.
For example, let’s say Frankie Finance is thinking about charging a new bike on her credit card that costs $350. The minimum payment she would have to make each month is $15 until the balance is paid down to zero. Sounds reasonable, right? But wait, there’s more to consider! The credit card company wants to charge her 16% interest on her purchase. If Frankie pays only the minimum payment of $15, it will take her 27 months to pay off the bike, which is over 2 years. Not only is that a long time, but Frankie would actually end up paying about $70 more for the bike because of interest charges.
However, if Frankie is able to pay off the whole amount of $350 in full that month, she will not have to pay any interest. Frankie also looks at her checking account and realizes that she has $500. She could pay for her new bike using her debit card, directly accessing money she already has, which means her account balance would go from $500 down to $150.
That’s a lot to think about! Which option would you choose if you were Frankie? What are some ways that you can use debit and credit cards responsibly?
We hope you had fun learning with us! Visit us at learn.org for thousands of free resources and turnkey solutions for teachers and homeschoolers.
