MAK: Hi, I’m Mak.

GRANT: And I’m G.

BOTH: And you’re here for money with Mak and G.

MAK: The only show that teaches you about finance.

GRANT: Business.

MAK: And accounting from a kid’s perspective.

GRANT: We are on a mission to demystify money to help you and your family be financially secure.

MAK: Welcome to Educounting, where my dad is passionate about financial education. Today’s video is about paper or plastic number two.

GRANT: Borrowing money.

MAK: When you buy stuff at a store, you can either use paper or plastic, when you use your plastic credit card, you get a total at the end of the month.

DAD: Hello, it’s dad. Welcome back. So what is a thing called a credit card? It’s referred to as plastic because most of the cards are made out of plastic. However, credit is a word that comes from Latin, which means to trust or believe. So if you give someone credit you trust or believe them with a credit card, you trust to believe that someone will pay you back if you lend the money. Credit cards are very helpful if used properly. If they’re used for purchases which are needed, and you have the money to repay them, then building points can give some great benefits. However, when credit is used, and the full balance isn’t paid, then it gets very costly. Right now there’s over a trillion dollars of credit card debt in the United States. That’s not a million or a billion. But a trillion.

GRANT: A credit card comes with the limit. Mom lets me have a limit of one cookie a day so I can never get more.

DAD: A speed limit is another limhttps://educounting.com/podcast/ep1175-get-the-budget-going/it. You’re not supposed to go faster than the limit set. If you do drive faster than the limit, a police officer can catch you and give you a ticket. Woohoo. So generally, it’s not a great thing to go over a limit as something bad usually happens and it’s not fun. For a credit card, there is a fee, just like a ticket.

GRANT: Credit cards don’t have a cookie limit. But the $1 limit, one of my dad’s credit cards, has a $5,000 limit.

DAD: I do have a credit card that has a $5,000 limit. But I also have others with higher limits too. A credit card company doesn’t want to give you a really high limit. If you can’t pay it back. Say for example, you have a $30,000 limit, but only have or make $10,000 a year. That wouldn’t make sense because you could spend more money than you make in three years.

MAK: He can buy two computers that would cost $2,000 each, but not three, two computers will cost $4,000 but three would be $6,000. That’s over his $5,000 limit.

DAD: The abacus did the first calculations over 1000s of years ago. It was made of rods and beads that can be slid up and down and used to count. The first use of the word ‘computer’ was actually used to describe a human who sat around and made calculations all day. But Charles Babbage designed the first programmable computer in 1833. However, he didn’t finish putting it together as all of the pieces which in total were over 1000 had to be made by hand. It was mechanical with switches and cogs. And not like the electronic ones we have today. He scribbled over 5000 pages of notes on how to make it. Now we saw the first computers as we know them now in the 1970s. And it got faster every year. A portable computer that came out in 1975 from IBM, which weighed 50 pounds, oh, this thing is heavy on my back and would cost $42,000 today, but 10 years earlier, it would have weighed about 1000 pounds. Can you imagine carrying that to school?

MAK: If my dad bought two computers, then he would get a statement from the credit card company. Now you’d have to pay $4,000.

DAD: A credit card statement is legally required to be sent to you by the credit card company each month. That means if they don’t send it to you, they’ll get in trouble because it’s a law. It has a lot of information on it which includes your charges. Information about fees if you don’t pay a minimum amount by the due date. And what do we say no fees, no fees. We never want to pay late or miss our minimum payment. We should always try to pay the credit card off each month. The statement also has fun information so it will track all your points and rewards. Right now I have over $350 worth of points on one of the cards I own. That’s really good in my opinion.

GRANT: If he only has $3,000 in his bank account, he can’t pay it off the 1000 differences called a loan they allow you to pay back later.

DAD: Credit allows you to use your card up to your limit even if you don’t have enough money right now to pay. This is where it can be dangerous. This is called a loan. For instance, if you loan someone your sweater you want your sweater back in the future. It’s the same for a credit card company. They want their money back in the future too. Arrrrrr give me money.

GRANT: Sometimes I loaned my iPad to MaKenna, she buys it for a while and then gives it back. I usually ask her for a part of her dessert to let her use it.

DAD: Loaning things to other people as well documented throughout history, all the way back to ancient times. Sometimes the rich loaned money to the poor, and they would work on their land, planting crops, feeding the animals, fixing stuff, or cutting the grass to pay it off. In the 1700s, a guy named Rothschild sent his five sons each to a different city in a different country in Europe, he created a system of international banking. I know sometimes you may want to send your brother or sister away, but you probably missed them. Anyway, He was one of the wealthiest families in the world. It goes to show that loaning money can earn a lot of money too.

GRANT: Since the credit card company lets you pay it later. They’re asked for something not deserved but more money that’s interest.

DAD: A credit card usually comes from a bank because banks loan money in history. The moneylenders did business from a bench, you know, a place to sit. Oh, thank goodness for this seat as my dogs are barking. This bench was also known as a bunker, which is where we got the word bank from. If the lender no longer had money to trade, he would pick up his bench and smash it, which was banca Rupa, which is now how we got the word bankruptcy. Rupture is a word we use in the US, which means broken. I find it fascinating where these things come from.

GRANT: If you owe $1,000 and have to pay $1,050, you pay $1,000 In principal and $50 in interest.

DAD: Credit cards charge an average 17% today, which is quite a bit other loans charge a lot less. A loan to buy your home is around 4%. This is another reason to be careful with credit cards. Plus, many credit cards have fees for not paying on time and not paying the minimum amount. And other things. What do we say to that? No fees, no fees. So if you borrow $100 For one year at 17%, that’s $17 in interest. But if it’s at 4%, that’s $4, which is a big difference.

MAK: So the credit card company charged my dad for loaning him the money and letting them pay later.

DAD: Okay, kids, this part is for the parents and it might get a little boring, but make sure they listen. Credit cards can be a valuable tool in an emergency or to use for items you already purchased that you can afford. However, the total debt for credit cards is continuing to rise in the US and is over $1 trillion. With the fees and interest rate. It’s very hard to justify carrying a balance if at all. Credit cards help with establishing credit, which is a big one. It’s hard to believe but having good credit affects many parts of your life. The interest you pay on any loan is affected by your credit score. In addition, many insurance companies use credit scores to set prices. Utility companies use them and almost half of companies use them to determine if a potential candidate for a job is responsible. So they should be treated with a great deal of respect.

If you use a credit card wisely, it does offer rewards and makes your life easier like making purchases online. Credit cards allow you to track all your purchases too. And many banks offer you the ability to categorize those purchases, which allows for better budgeting. In addition, you don’t have to be afraid if someone steals your card as your exposure is limited to $50 and many companies waive that fee. Plus, if you have an issue with the product you bought, the credit card company can help rectify the situation or possibly ensure the purchase if they offer that benefit. Depending on when you buy something and need to pay. You have the use of money for over a month. This is the grace period which can be very helpful. And you can also travel with credit cards very easily and have them paid automatically. It’s best to stay away from using credit when you’re purchasing something you want that you can’t afford. This is considered bad debt and will drag you down. Being cognizant of the fees, the interest and potential issues of misusing your card will help you to stay out of trouble. That’s my quick two cents. Thanks for being here, where it’s fun to talk about money and learn things on money with Mak and G and remember, start young and grow wealthy.

MAK: We hope you liked this episode. Now it’s time to grab your mom.

GRANT: Or grab your dad.

MAK: Because it’s now time for you to talk to your parents about what we’ve discussed. Thanks for joining us. If you haven’t yet. Be sure to subscribe, rate and review this podcast.

GRANT: We want to help you succeed.

MAK: And if you want more insights on financial education, check out www.moneywithmakandg.com for lots of extra stuff, which is growing all the time. Thanks for listening.

DAD: Bye!