What is Debt? A Simple Explanation for Kids, Teens and Beginners

What is Debt? Borrowing 101: Easy Peasy Finance for Kids and Beginners

Introduction to Debt for Kids and Teens

This video explains the concept of debt in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about debt, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

What is Debt - A Simple Explanation for Kids Teens and Beginners
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Suitable for students from grade levels:

  • Kindergarten
  • Elementary School
  • Middle School
  • High School

The topics covered are:

What is debt?

What is Debt for Kids Teens and Beginners
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Debt is money that an individual, a company or a Government borrows from another party for a specific purpose or an unforeseen event.

They also make a promise to pay back that money to the lender over time; plus a little extra money, called interest.

What are the types of debt?

For individuals, the main types of debt are credit card debt, mortgages, student loans, car or auto loans, and personal loans.

Companies can borrow money by issuing secured or unsecured bonds of different durations and interest rates – or coupon payments – this is called corporate debt.

Similarly Governments can borrow money by issuing debt instruments like Treasury bills (T-Bills), Treasury Bonds (T-Bonds) and Treasury notes (T-notes). Since the government bonds are backed by the government’s promise, they are less risky and therefore pay less interest than corporate bonds.

You may also like:  What is a Loan? A Simple Explanation of Borrowing for Kids, Teens and Beginners
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Who can lend money?

Banks, credit unions and credit card companies can give loans to individuals.

Companies can get loans from banks or borrow from the general public by issuing bonds.

Governments can borrow from international banks like the World Bank or the International Monetary Fund, or raise money from individuals, corporations and other governments by issuing treasury instruments. 

Why would anyone take on debt?

Borrowing and Debt - Purpose
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Debt is useful for meeting the shortfall between income and expenses. For individuals, it could range anywhere from credit card debt to big life changing debt like a mortgage or student loan.

For companies, debt might be a better way to raise money for large purchases than issuing additional shares and diluting their ownership.

Similarly, when government income is not enough to fund large projects, they can cover the difference by taking on debt.

Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

Podcast: What is Debt

What is Debt for Kids Teens and Beginners
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