I recently asked my niece if she could tell me how a credit card works. She’s a pretty smart cookie, but she’s also not old enough to have a credit card yet. So it wasn’t a surprise when she described how a debit card works instead.
Because she has a checking account with a debit card, she understands that the money associated with using her card is her money coming out of her account—hence the term debit card because it “debits” her account.
I explained to her that a credit card account is a loan, or “credit” that’s extended to you. In other words, it’s money provided by the bank or card issuer that you need to pay back. It was a great teachable, “Aha!” moment for her.
All this got me thinking about our high school and college readers. When did you learn the difference between the two? Did anyone explain it to you?