What Is Debt?
Debt is money you owe to someone else.
Owing $20
Coins that get repaid
The greyed-out coins have already been repaid — 5 of the original 20. Each repayment makes the amount owed smaller.
Debt is not free money
Borrowing gives you access to money now, but it creates an obligation to repay it. Some borrowing also involves interest and fees, which can make the amount you eventually repay even bigger than what you borrowed.
Different kinds of debt
Different types of borrowing come with different terms, costs and risks — a small amount borrowed from a family member isn't the same as a large loan from a bank. We'll look at some of these differences in the lessons ahead.
Sam's debt
Sam borrows $30. Sam pays back $10. How much does Sam still owe?
$30 − $10 = $20 still owed.
If interest is added, would the amount owed be higher or lower?
Higher — interest adds to what's owed on top of the original amount borrowed. We won't calculate the exact numbers here, but it's an important idea to remember.
Use simple examples your child can follow. It's usually best to avoid discussing your own family's debts in front of children unless you feel it's appropriate.
Where to next
More on what borrowing means and how interest works.