Comparison: Credit Cards vs Debit Cards for Kids and Teens
This video does a credit card vs debit card comparison in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about the advantages and disadvantages of each, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Kindergarten
- Elementary School
- Middle School
- High School
The topics covered are:
- What are credit and debit cards
- The main difference between credit cards and debit cards
- Other differences between credit and debit cards
- Should you use a credit card or a debit card
Old Version
- Differences between credit cards and debit cards
- Difference in the fees charged by them
- Which is better: a credit card and a debit card
Infographic: Click Here to Download
What are credit and debit cards?
Credit and debit cards are plastic or metal cards that can be used to make purchases in store or online, pay bills, withdraw cash from ATMs, and more.
They are issued by banks, credit unions, and other financial institutions.
What’s the main difference between the two?
When you use a credit card, the card issuer pays the merchant on your behalf up to a certain amount, called the credit limit.
At the end of each billing cycle you get an account statement which lists all your transactions that month, along with the total amount you owe – which is called the card balance.
If you pay your credit card balance in full every month, you’re not charged any interest. However, if you carry a balance from month to month, you are charged very high interest on your balance.
But when using a debit card, the money goes directly from your checking account to the merchant – there is no loan involved.
If there’s enough money in the account to cover the purchase, it’ll go through without any problems. However, if there isn’t enough money, one of two things will happen.
If you have overdraft protection, your bank will allow the transaction to go through by offering a loan to cover the difference, and then charge you an overdraft fee.
If not, your purchase will simply be declined and not go through.
Are there any other differences?
Most credit cards come with lucrative rewards like cash back or miles. Some debit cards have started offering rewards, but they are not as good as credit card rewards.
Credit cards also offer better fraud protection. If there is a fraudulent transaction or your card is stolen, you won’t be charged for the purchases you didn’t make.
However, since your bank account is tied to a debit card, if the debit card is lost or stolen, the thief can drain your entire bank balance!
Also, credit cards can help build your credit score based on your usage and payment history. Debit cards have no impact on your credit score.
Lastly, while not ideal, credit cards do offer flexibility by allowing you to pay for an emergency and pay it off over time. However, the amount you can spend with a debit card is limited to your bank balance.
Which one should I use?
If you know you’ll be responsible by not overspending and paying off your balance in full every month, then the ability to build good credit, rewards, and fraud protection make credit cards the better choice.
However, if there’s a good chance you’ll end up overspending and will carry a balance, you should definitely avoid credit cards as they are one of the costliest forms of debt.
In this case, it would be better to use a debit card as it’s impossible to get into debt or spend more money than you have.
Credit Cards vs Debit Cards: Old Version
Is there any difference between a credit card and a debit card?
My friend told me that his credit card is better than my debit card. But is that true? Is there even a difference?
Yes, there are a couple of differences.
Well then, what are they?
First of all, for credit cards, you borrow the money from the bank. But with debit cards, you use your own money to make the purchases or for ATM withdrawals.
And also, with credit cards, you have to pay interest if you don’t make your payments in full for the month, or you don’t make your payments at all. But with debit cards, since the money is coming from your own account, you will not have to pay any interest.
Yay!! But…
Is there a difference in the fees that they charge?
Yes. With credit cards, many of them will have an annual fee.
But with debit cards – most of them do not.
Yay! But…
Are there any other differences?
Yes, there are.
With credit cards – well, at least with most of them – you can earn rewards (points, miles or cash back) that can be redeemed for cash or goodies. But with debit cards, usually you do not earn any points or other form of rewards.
Which is better: a credit card and a debit card?
You talked to me about all the differences, but which is better?
Well, if you’re disciplined and you make your monthly payments for the credit card – and make them in full – then credit cards are probably better for you, because you also get free credit and you can get rewards.
But if you don’t think that you’ll be able to make your monthly payment in full, and you don’t think you’re that disciplined, then a debit card is better for you.
Thank you very much for telling me the difference between a credit card and debit card, Wall Street Willy.
You’re welcome, Sooper Cooper. Remember, finance is your friend!
Video Featured in the Below Financial Literacy Course for Kids & Teens
Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens
Podcast: Credit Cards vs Debit Cards
Fun, informative and concise episodes by a 10-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. That’s what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
A comparison of credit cards and debit cards – their differences in terms of the way they work, their fees, rewards, etc. And whether a credit card or a debit card is better for you. Show notes and transcript at: https://easypeasyfinance.com/comparison-credit-cards-vs-debit-cards/