The big ideaCredit is borrowing in six written steps: ask, check, agree, use, bill, pay.
How it works
Credit is using a lender's coins now and paying later. Ruth could not pay Mae 6 coins for cloth until after the festival, so she used credit. It works in six written steps: ask, check, agree, use, bill, pay.
Ask for an account, a page in the bank's book with your name. The bank checks whether you paid back on time. You agree a limit, the most you can use at once, and a price: no extra if paid in full by the due day.
Use it: the bank pays the shop at once, and you owe the bank. At month's end the bill comes, with the amount and a due day. Then you pay, and the bank writes a tick in your record.
If the due day goes by, the bank adds a price and notes the late day. Credit is not magic: it is a promise, written down and kept.
Ruth's limit is 10. She uses 6 of the places, and 4 are free.The money moves.
Example 1: The limit
Ruth's limit is 10 coins, the most she can use at once.
She uses 6 on cloth.
10 − 6 = 4, so 4 coins of the limit are free.
Example 2: The bill
The bank paid Mae 6 coins at once.
At month's end an envelope says 6 coins, with a due day.
Ruth rings the due day on her calendar.
Example 3: Paying in full
Ruth brings all 6 coins before the due day.
No extra is added, since the bill is paid in full.
Mr. Fenn writes a tick: paid on time. The limit opens again.
Example 4: A late day
Say the due day goes by.
The bank adds a price and notes the late day.
That is why a ringed day matters.
Words to know
credit
Using a lender's coins now and paying later.
account
A page in the bank's book with your name on it.
limit
The most you can use at once.
bill
What is owed, sent at month's end with a due day.
due day
The day to pay by.
Watch out
Credit is borrowing, not free money. The bill always comes.
The limit is the most you can use at once, never more.
The check comes before the agreeing, and using the account is step four.
The bank pays the shop, so the coins you owe are the bank's.
Try it
The limit is 10 and 6 are used. How many are free?
Which of the six steps comes first?
Who pays the shop when you use the account?
What happens if the due day goes by?
Answers: 1. 4 · 2. Ask · 3. The bank · 4. The bank adds a price and notes the late day
Try at homeWith a grown-up, look at any bill your family gets, like a water bill, and find the amount and the day it is due.
For grown-upsPretend coins and a made-up bank. Ask your child to walk you through the six steps with Ruth's cloth, and say who owes whom at each step.
Open these notes on screenScan the code, or go to tutorpip.com.