You know that you can use money to buy things you really want or need. But sometimes, instead of paying with cash, you might see adults paying with a credit card.
What’s the difference between cash and credit cards?
Cash is Money You’ve Already Earned
You earned the money in your piggy bank. That money belongs to you. When you pay with cash, you’re using money that you have today.
Adults Borrow Money with Credit Cards
Some adults use credit cards to borrow money to pay for things. Usually, they do this when they don’t have enough money saved up to buy the item, but they need or want it right right now. Let’s say that the roof leaks, and the family doesn’t have enough money to get the roof fixed. But the roof needs to be fixed right away.
If your parents use a credit card to fix the roof, they’re really borrowing money from a bank or a business. If they don’t pay the money back quickly, they will have to pay the bank or business extra money. When banks lend people money, the bank charges people for that money!
Smart people pay that money back as soon as they can. Maybe they take money from their next three paychecks. Until they pay back the money they owe, they don’t spend on anything “extra.” The sooner that people pay off the money they borrowed, the less “extra” money they owe the bank.