Episode 4 : Debit vs Credit

Debit versus credit. What's the difference? How fast is credit card use growing? How can it get you in trouble, fast? And what are banks doing to prepare for our generation's needs in how we want to handle money or forms of it? Answers to those questions and more coming up in season 2 episode 4 of the Cash Kid Podcast. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

Debit vs Credit

Hey Cash Kids! Ready to test your financial literacy skills even further today? We are in season 2, episode 4 of the Cash Kid Podcast where we are working to build super financial skills. If you haven’t already, go back and listen to past episodes as each one builds on the next. 

Today, debit vs. credit. Do you really know the difference between them? How fast is credit card use growing? Can it get you in trouble? And what are banks doing to meet our generation's financial needs? Those answers and more are coming up! The Cash Kid Podcast is underway.

Intro tease:

So you’ve got some cash. Maybe from an allowance, or that money your grandma gave you for your 7th birthday. Here you go, sweetie. Thanks, Grandma.

 

Whatever it is, what are you going to do with it? Spend it, hide it away… or maybe invest it? Let’s start learning how to make that money grow.

Time to learn how to be a cash kid.

 

Joining me again today is Mrs. Amy Greer with Cadence Bank. 

She is the Director of Digital Transformation where she works to make sure customers have a great experience online or in banks apps, including all types of money movement that we will talk about today.

Thank you, Mrs. Greer, for joining us on the show again. Let’s get into it.

Cash Kid: So what is your definition for debit?

Amy Greer: Well, a debit card is actually a tool that's connected to a checking account that allows you to use that at various places, such as stores and any merchants is what they are called that accept card payments, which is pretty much everywhere nowadays. But it is a way to to pay for for goods or services, and it comes directly out of your checking account.

So you have to have the funds in the account in order for it to process. It's not money that you're borrowing, and so it's not credit, which I know we'll talk about in a little bit, but it's actually linking to the cash that you have sitting in your checking account. And so it's just a quick and easy way to pay for things.

And it also helps guarantee that you have proof of purchase and kind of like a digital receipt. And because then you can go back and look and see what you spent where in the super helpful in that way.

Cash Kid: So to clarify, debit is cash you actually have in your checking account. Right. 

Amy Greer: That's right. It's your money in your account. And debit is just the tool that you use to get to to pull the money out, to pay a person.

Cash Kid: How did people pay for things before debit cards from their checking account?

Amy Greer: So lots of checks. Lots of lots of recording checks in the check register, like I mentioned. So people would pay with checks and cash was a lot of cash. And there's been a huge decrease in just the amount of cash that the government even makes now, paper cash. Because of because of the digital currency and things that are taking over.

Cash Kid: What brought about the need for debit?

Amy Greer: The need for debit, I think, really began out as just the fact that cash was getting harder to keep up with. Checks were people were trying to be more environmentally friendly and not write as much paper. And so this concept of the debit system, that electronic money movement kind of was birthed. And it's really again, it's back to it gets money places faster and safer and there's a trail for you to track it.

Cash Kid: How do people mostly use debit as a form of payment?

Amy Greer: Most people use debit as a form of payment at what we call point of sale, which that means you're at a store or another name you'll you'll learn over the years as a merchant. And so really, as you as you are buying something in the gas station or you're buying something, you know, at a concession stand or at an event, that's the point of sale purchase is when you tap your card or insert your card or swipe your debit card.  There's all different options these days. That's where most of the transactions occur. It's not as readily available to use your debit card to pay another individual. That's where some of the digital forms of payment come in, where you can send money digitally to different accounts like Venmo and things that we've talked about.

 

(music transition)

 

Cash Kid: All right. Let's switch to credit. I feel probably, most people hear this term more than debit. What is your definition of credit?

Amy Greer: So credit in the simplest sense is really an account that's established. But it is borrowed money from the bank. It's a borrowed line of credit. It is basically the bank or the the card provider saying to you. You have shown me that you can do a good job with responsibility financially. So I'm approving you to have $5,000.

Let's just say as an example, you can use it all at once or you can use it a little bit at a time, but you have to pay me back a little. You have to pay back at least a certain amount in the minimum amount each month, and you have to pay it on time. And therefore you can avoid fees and the interest rate if you pay it off entirely in the interest that they banks and card services charge you would never would never factor in because you would have a zero balance.

So it is just essentially a permission to use X number of funds. And then you have to show responsible behavior prior to even being able to get one. But this core difference between credit and debit is that credit is not your money. It is borrowed money of the institution, whereas a debit card is your actual money. It is actually in your checking account.

It is tied to your real balance. 

Cash Kid: How do people use credit cards today?

Amy Greer: Credit cards is a fast, fast growing industry, and it is where I think the large majority of transactions are occurring on credit cards. Credit cards, it's increase from, let's say, you know, probably five years ago, I think it was like at the 20% rate was the number of payments made with credit card. And today it's it's like in the thirties if if I recall from the last time I looked.

And a lot of that is related to how the different credit card companies and banks present their services and give you things that come as a bonus with it. So you can earn points or you can earn free airline flights, or you can have some you can set up and choose donations. So they've made it very attractive for people to use credit cards.

 

Cash Kid: What age can you get a credit card and where can you get one.

Amy Greer: So you can get a credit card on your own technically  at age 18, however, you need to have had a history of proving that you have had good behavior in terms of paying off bills. So to do that, you would have had to have have get a high school job, show that you have income, get a cell phone bill or something, some sort of bill, something of yours in your name before you're 18 and pay it back regularly.

Have a savings account, show that you saved. All of that are the behaviors that are going to help you build credit. But really, you can't apply for one until age 18.  

Cash Kid: What's a good way for parents to help their children with their first credit card?

Amy Greer: A great way to help them would be to teach them how important it is to use it responsibly, because it really, really if it's not done responsibly, a credit card can actually harm your financial well-being more than helping it. So it's it's a good way to to build credit so that you can get future rewards from it.

So even if you have a $5,000 limit, if you know there's no way in the next year you're going to make $5,000 or get $5,000 in any capacity, then you don't need to spend anywhere near that.

And so learning just some of those tricks about how to use it responsibly, paying it off on time, the minimum and don't spend more than you can pay back , then you'll be well on your way towards making the most out of it.

Cash Kid: How can a credit get you in trouble?

Amy Greer: Credit can definitely get you in trouble easier than you would think. There are some some situations where you're asked to pay a bill or something, and if it's late, even one time, depending on the service provider, they can turn you into a credit bureau, I mean, to a credit agency, and that can ding what we call ding your score.

And so you have to have a you everything you do is building a profile for you for your future. So credit can get you in trouble. If you're not responsible in making payments, then you can not be approved for future credit cards or loans.

When you go to buy a house or you can be given a very high rate. So if you if you damage your credit, then you're going to go in kind of a different bracket, if you will, for what rates you're eligible for. And you're typically not going to get the most competitive rates. You're going to get rates that are very high.

So that'll end up costing you a lot more money just to borrow money for a credit card.

 

Cash Kid: How do you feel banks are preparing themselves educational wise or app wise to accommodate the upcoming generation… that's going to deal more with just digital currency and kind of the way they want to handle money?

Amy Greer: Yes, that is a great question. Banks have really upped their efforts on financial education and financial literacy.

I can assure you all the conversations at banks are heavily weighted on building the technology in the financial education for the future.

So building those things are going to be absolutely critical to attract anyone in the younger demographic to want to come and bank with us. So there is a lot of energy, a lot of investment going into prioritizing all of the digital solutions on top of that financial education. So the combo of those two is what is what really adds value.

Cash Kid: Is there anything we haven't asked you that you would like to share with our audience?

Amy Greer: I think we've covered it all. These are great questions and it's a really, really important topic for teens and you really understand the importance of being responsible early on so it can help them in the future. 

 

Thank you Mrs. Greer for furthering our financial skills. 

Cash Kids, thank you so much for listening. We’re going to dive into the topic of credit next week and tackle a topic most adults don’t understand. Your credit score. What is that? Tune in next week.

Got a financial question for us to answer? Just email me at: cashkidpodcast@gmail.com or leave a message on our website at cashkidpodcast.com. Also please leave a review wherever you are listening from, and follow us on Instagram. We appreciate you.

Cash Kid Out!