Replay: What is a credit card, and how does it work?
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Hello, listeners. If you're hearing this, I'm going to assume you're at least interested in money and understanding the economy and finances. And some of us want our kids to have that knowledge, too. Check out Million Bazillion, Marketplace's award-winning kids podcast that breaks down money to help dollars make more sense. A whole new season is out now.

Million Bazillion is presented in partnership with Greenlight, the debit card and money app for kids and teens. Greenlight helps kids and teens learn to earn, save, spend wisely, and invest. You can learn more at greenlight.com slash million. And tune in to Million Bazillion wherever you find your favorite podcast. Hey, Million Bazillionaires. Hope your summer is going well. And we are headed into the 4th of July holiday weekend.

And we wanted to share a really great episode that we originally released like quite a while back. But it's actually the very first episode that Ryan and I made together. And trust us, you'll want to hear it. Some familiar voices from this one are making a surprise return later in the season. But we don't want to spoil anything for you just yet. All righty. Here's the show. Bye, Jed. We'll miss you.

Well, it turns out my old friend Jed packed up and is moving on to a new adventure. He's going to be the first professional dirt biker to race on a unicycle. He's going to have a great time. Anyway, it means this show needs a new co-host. We're here at the Warren Buffett Center for the Performing Arts, and one of these lucky auditioners will be the next co-host of Million Bazillion.

And of course, credit the fault swaps were a major factor in the financial crisis of 2008. Hmm, this is over my head. Thank you though. Next. Five, six, seven. Theory dictates that aggregate demand is an economy's main force. Ah, also over my head, but you have a nice voice. Next.

Sorry. What are you doing? I'm miming the eternal tug of war between supply and demand. Oh, sorry. Yeah. Miming doesn't really come through on a podcast, but love the effort. Next. Oh, that was the last audition. I just need a co-host who can make talking about money fun, even if they don't understand money at all. Hey, you with the broom, who are you?

Me? Why, I'm Ryan, just a humble sweeper of the stage. I chase around the spotlight every night with my broom, but never catch it. Cool. Do you know anything about money? No, in fact, I'm extremely bad with money. I invested in GameStop, but not as a joke. Oh, that's great. I mean, not your bad investments, but that you have a lot to learn. Like, that's just what I was looking for.

You wouldn't by chance be able to give a compelling recap at the end of an episode. Why, I was born to recap. My mother said it was my one true talent. Perfect. You got the gig. Just go ahead. Say the thing. Stand here. Closer to the microphone. You're listening to Million Billion. Billion Bazillion. Bazillion Minion. Million Bazillion. I'm Ryan. I'm Bridget. And we help dollars make more sense.

We'll work on that. And welcome back, everyone. We're here to answer the questions you have about money. And turns out quite a few of you have the same burning question. Hi, Mill and Bazillion. This is Teddy. My name's Esther. And my name's Tommy. We're from New Jersey. I live in Golden, Colorado. And my question is, what is a credit card? And our question is, how do credit cards work?

I don't know the answers to these riddles. I knew I'd be a bad host. I'll show myself out. Hey, no, no, it's okay not to know. We're going to discover the answers together. That's how the show works. Oh, phew, because there is a lot I don't know. And these are both great questions. I bet they have really interesting answers. So to start, Ryan, tell me everything you know about credit cards. Hmm, let's see. Credit cards are thin plastic cups.

cards usually. They usually have like a stripe on one side and sometimes a little fancy chip on the other side. There's someone's name on them and a long string of numbers. And you often see people whipping them out of their wallet to pay for things. And when you show it to a cashier, they're super impressed and say, yes, sir, whatever you say, sir, and give you anything you want. And I'm not allowed to have one in 36 states. Wait, what? Nothing. Hey, do you

You think in order to illustrate this lesson, you know, for the children, it would be helpful for us to get a credit card? Well, it's not that easy to just get one. Like you have to ask the credit card company to give you one. Not everyone that wants one is going to get it. It could take a while. OK, let's just do all that stuff during the break. And when we get back, we'll just have a credit card. OK, let's just make sure we're careful about this and we'll be right back.

And now it's time for asking random kids not-so-random questions. Today's question is, what do you wish you had a million bazillion of? Dogs. I would want a million bazillion friends. Money. I wish I had a million bazillion of a lollipop. Me. Because then I can make friends with all of myself.

That was Eloise in Illinois, Mateo in California, Ada in Georgia, Max in Maryland, and Michael in Connecticut. This has been Asking Random Kids Not-So-Random Questions. All right, let's do this. So, credit cards. A credit card lets you pay for something instantly. Yep, and then it's yours, free and easy, right?

No, not really. You see, when you use a credit card, you're actually borrowing money from a credit card company. You don't have to have the money in your hand or like in your bank account, but you do have to pay it back to the company eventually. Right. That makes more sense than the card just being free money. Wow, I am learning a lot. This show is good. A

A lot of stores let people pay with a credit card instead of cash or debit. To the store, it is sort of like cash because they get their money right away. The credit card company is paying that bill. Oh, I've got our new Million Bazillion credit card right here. You want to try it out? Oh, no, I really shouldn't. But, you know, there were a few things in the theater gift shop that I'm going to need for this podcast. Some voice-enhancing lozenges, a brown-bound book of terrific tongue twister warm-ups, a big flowy cape. You need a cape to host a podcast? What?

Why, I simply shantosed without a cape of some kind. All right, cool, fine. Let's go to the theater gift shop.

Yes! See? It's that one! The big shiny one made of indigo velour! Okay, let's just look at the price tag. Uh-huh. Okay, okay. $50 for the cape. I only have $35 on me. What about you? Well, today I'm a little light on dollars. I won't get my sweeping paycheck for another few days. But we could buy it with a credit card. Exactly what I was thinking! We can use the credit card because we know we will have the money to pay for this soon.

Okay, I think I'm getting it. It's like, say someone wants to buy a new board game and it's $10, but they only get like $2 allowance once a week. Well, they'll have the $10 at some point, but if they need the game right now because, you know, say they're hosting a neighborhood board game night and this crew doesn't do repeats, yeah, then it's okay to use the card. It's not a free pass to just buy stuff. You're still promising to pay back what you owe.

Wow. Great recap of how these credit cards work. Told ya. And yeah, I'm gonna have the money, okay? My paycheck is in the mail. It's a done deal. Don't even worry. Yeah, okay, you're getting this. Alright, and I guess we can get the cape. Yes! You know what, Bridget? I've always been so terrible with money, but I'm really starting to think this credit card is gonna fix all my money problems. Do you get that feeling? I get that feeling.

Alright, there's your total with tax. Will you be paying with debit or credit? What's the difference? Um, debit purchases are subtracted from the money you already have in your checking account. And credit is like borrowing money you'll have in the future. Um, yeah. That's gonna be credit. Oh, we have credit, everyone. But we don't want to be treated any different than you. We're normal people just like you. Just insert your card into the chip reader.

Okay, looks like your card has been approved. And these items are mine now, right? I can just walk out? Yes, that's how it works. You don't owe the store any money for buying the cape. We have your money. Now you owe the credit card company, and they're going to send you a bill at the end of the month.

Okay, so back to that credit card bill. A bill is just a list of everything we bought. And we'll have to pay at least some of what we owe on that bill by a certain date. If we don't pay anything at all, we'll have to pay late fees. You mean like at the library? How much could that even be? Actually, late fees can really add up, but that's not all. Oh, I see, I see. Oh, did you know that credit cards work online, too? Look at what I just ordered for a surprise delivery. Wait, did you buy a boat? Please, please. This is a luxury mega yacht. Come on, come aboard.

Uh, okay, hold up. This boat is way too expensive for you to pay off anytime soon. Just because a credit card lets you buy something, it doesn't mean you'll have the actual cash to pay for it later. Yeah, but later is later. How about right now we christen this hunk of junk with a spinaroo around the harbor? Ahoy, hoy!

Don't you just love the open sea? I feel as if my whole life is ahead of me, like I'm on the Titanic itself. Credit cards are great. One minute you're sweeping up a stage, and the next you're yachting in a cape. Yeah, I'm not sure you're fully getting this, Ryan.

Credit cards can get complicated real fast. Right, right. You said at some point I'm going to have to pay the credit card company every dollar I owe them, right? Well, the credit card company won't always make you pay off everything at once. Like sometimes they'll say you can pay them just a little bit of what you owe now if you promise to pay them some extra money on top of what you borrowed. That extra money is called interest. Wow, starting to feel a little queasy. Is there a captain?

Can they drive the boat a little less rocky? You're speaking to the captain, and my answer is, I don't know how. My dear, you look as green as a dollar itself. Are you seasick? Just a little. Hold on. On the count of three, I'm going to scare you. That should do the trick. One, two, three. No, no, that's for hiccups, not seasickness. I just need you to stand still right now. Okay, okay, let's get your mind off it. Keep explaining money stuff. You were saying something about interest. What's interest?

Interest is what it costs you to borrow that money. The credit card company is charging you for however long it takes you to give them their money back.

Every week you don't pay them back. They add a little more to the bill. So you're saying if I buy something for $10 and use a credit card to pay for it, but I don't pay them back that full $10 right away, if I just pay them $4 to start, then they'll start adding more money onto my bill? Yeah, that's pretty much how it goes. So by the end, you may have ended up paying them $12 for something that should have cost $10. Oh, boy. Okay. Really feeling...

every single wave here. Hold the phone. So using a credit card actually costs more than using cash? Uh, yeah. I mean, if you don't pay off everything you owe at the end of the month. Ooh, uh, you know, I'm feeling nauseous too. I'm realizing I'm going to owe a lot more

of money later, way more than I'm going to be able to pay off. I'm starting to think credit cards aren't the solution to all my problems that I thought they were. Well, yeah. That money you owe is called debt. When you owe money or have a debt, you want to make sure you'll be able to pay it back someday. But remember that credit cards add interest or extra money onto the total you owe if you don't pay it all back when they ask you to. And that money can start to add up really fast. It

even if you didn't even spend all that much in the first place. Oh, no, I didn't know any of this. What if I've doomed us to debt, Bridgette?

That's okay. I mean, don't beat yourself up. We're learning about this stuff together, and we're going to figure out a way to handle it, okay? That's what this show is all about. Yeah, I get this is a fun show and stuff, but I owe real money. Someone's got to come looking for it. Okay, let's take a breath. It's okay. You know, a lot of people don't pay off their credit card bill every month for a bunch of different reasons. And it is something to pay attention to because you actually do get graded on how good you are at paying off your bill.

And if your credit grades or credit score isn't great, it can make it harder for you to borrow money later on. What a racket. Do people know about this? Yeah, I mean, I think they kind of do. It's all there in that paperwork they send you with a credit card. Paperwork? Oh, you mean that packing filler? I threw that all away. That's not filler. That's where the rules are printed. You mean that really tiny printing? No one can read that. I can't believe it. This can't be.

Oh, I mean, yeah, it's frustrating, but don't worry, we can still fix this. No, they're in the distance. It's a ship. No way, no way, no way. Pirates! Uh-oh, maybe getting this credit card was a bad idea? It's a pirate ship.

I did not expect to see that in the Newport Beach Harbor. Turn the boat around. I don't know how. That hasn't been covered in my yachting online masterclass yet. Wait a minute. Those aren't regular pirates. Are those... Ghost pirates? Ghost pirates? The most dangerous kind of pirate? And the most dangerous kind of ghost? And they're boarding our yacht. Arr, tis I, the ghost of Blackbeard.

Wow, it's Blackbeard. He's a really famous pirate. I know who Blackbeard is. Me and my ghost pirate legion have come to rob ya. But first I gotta ask, you're obviously very rich. You've got the most extravagant ship I've ever seen. But no treasure, as I can see. It doesn't add up.

We don't need treasure. We have a credit card. Credit card, eh? What's a credit card? It's like a little piece of plastic that you can use to pay for things instead of using paper money or coins. To buy things you don't have the real money to afford yet.

Oh, must be nice. Sounds like if I had a credit card, I never would have entered a life of piracy in the first place. I'd just sit on my keister and charge everything like a robber baron instead of working hard every day out at sea to steal a few measly doubloons. Yeah, but when you charge things to a credit card and don't have the money to pay it all off when your bill comes, the credit card company will charge you a little extra money every day that goes by that you haven't paid everything you owe, and that's called interest. Right.

And the credit card company gets to keep that money. You could end up owing a lot of money that way. Why, that sounds like a form of piracy as dastardly as any I have practiced in my day. Why would anyone want a credit card? Sounds evil.

I, for one, wholeheartedly agree with you, Blackbeard, or Ghost Blackbeard, or Mr. Ghost Blackbeard. Well, hold on. Maybe we gave you guys the wrong idea about credit cards. Like, most American adults do have one. I mean, Ryan's been using ours very irresponsibly, but there are good uses for them. And credit cards make it so you don't have to carry around so much cash. And you can buy things online with them. She's right. If we had a credit card, we could finally get the subscription to

- Pirate Entertainment Plus. - Our favorite pirate streaming app. - They won't take the balloons or emeralds. - And you can't even share your password anymore.

Wait, you actually know about online shopping? We have Wi-Fi. We're pirates, not cavemen. But, you know, another thing about using a credit card responsibly is that it helps build that credit score. Remember, like in case you need to borrow for something bigger, like a car or a house in the future. We're trying to play the long game here. Eh, I'd probably just steal something big instead of going through all that trouble. Yeah, stealing is more our style. Yeah, that's true. Arr, listen up.

I'll make you a deal. I won't make you walk the plank if you let me use your credit card. Real quick, just for a second. Sure. Take the card. It's all yours. What are you doing? Saving our lives, Ryan. Trust me, I have a plan. No, no, no. Sorry, Blackbeard. We need to know what you want it for. For an in-app purchase of this game I play on my phone where you collect these little, like, gems. They're like...

shiny rubies and you can trade them with other pirates. I don't know. I don't think Blackbeard's ready to use a credit card, especially to buy rubies in some sketchy phone game. We need to set reasonable boundaries with Ghost Blackbeard. They have swords pointed at us. We can set boundaries later. You know what, Blackbeard? Here you go. Here's the card. Awesome. All day long with me, you've been like, you need to be responsible, blah, blah, blah. Now Blackbeard wants to use the card to buy some game for babies and you're like, cool, take it. Waste all my money. That's not exactly fair, Bridget.

There's a few other random websites that have been asking me for a credit card number, so now I finally have one to give out. Careful, Blackbeard. Don't misuse the credit card. You have very little understanding of its power. Bridget, what have you done? How are we going to pay for all this? You're single-handedly responsible for this. Uh, have you even been listening to this episode?

Ugh, Blackbeard keeps charging stuff to our card. And giving out the number to online phishing schemes. My fish friend on Fishbook says they need $10,000 so I can invest in their sand dollar business. They seem nice. I'm going to just give them our credit card number.

Blackbeard's going to ruin our credit score forever. It's going to make it impossible for me to buy a house one day. I mean, it would be impossible for me even if I had decent credit, but now it's extra impossible. All right, you lily-livered podcasters, I'm sick of your bellyaching about money. I'm tossing you two overboard. But you said you'd let us go. You double-crossed us, you mangy scalawag. Double-crossing is what us mangy scalawags do. Overboard you go. And now to keep making charges on the cards.

Wait, what? Charge declined? What's happening? Not so fast, Blackbeard. Ah, who are you? Poseidon, the god of the sea. No, I'm Fico, the god of using credit cards in the recommended way. You've angered me by irresponsibly

Using a credit card without permission. So you used your mighty power to decline my charges? No. When you threw us overboard, I took a moment to file a fraud report and froze the card. That was my plan all along. Oh, good one, Bridget. Your spending spree ends here, Blackbeard. Bridget, Ryan, but I thought I threw ye overboard. I rescued them from the sea.

You double-crossed my double-cross. Yes, a classic double-double-cross. Cross. As for you, Blackbeard, I'm sending you back to the netherworld of Davy Jones Lothar. For a thousand years? Just for seven years. Oh, that's not so bad. Bridget, Ryan, sorry I stole your credit card.

Well, you are a pirate. Yeah, well, guess I better get to serving me seven years. Bye, Ghost Blackbeard. Bye, Ghost Blackbeard. Bye. Bye. We'll remember you forever. Bye, Bridget. Bye, Rob. I'll see you next time you fill out an apartment application. Bye, Fico. Love you. I have a joke for you. My name is Arwen. I am...

Seven, almost eight, and I live in Brooklyn. What happens when your pile of bills gets too heavy? You can't budget. Okay, so what did we learn from all this? Ryan, this is your big recap moment. Let me straighten my cape. Cue the lights. Cue the music. The perfect music.

When I woke up this morning, I was just Ryan, a humble sweeper of the stage. But now I am Ryan, Cape Sailor of the Seas. A credit card is a tool that allows its users to buy something with borrowed cash, borrowed today but must be paid back later with interest. A lot of people use credit cards just to help them get through life, like to pay for groceries until their paycheck comes in. Others use them for convenience.

But if not used thoughtfully and with care, a credit card can cause real problems for you in the future. Just think of this power, made possible through the magic of technology, all encased in this little rectangular piece of plastic. Wow, Ryan, you really are good at recaps. I have chills. Don't thank me. Thank my cape, which gave me the power to deliver any line with confidence.

All right. Well, I hope we answered the questions that Teddy, Esther, and Tani had about credit cards. There's a lot more to know, but I think we made a really good start. If you're not done learning, head over to our website, marketplace.org slash million for a really cool tip sheet. It's got a whole bunch more information all about credit cards.

So how are we going to fix this credit card mess? I don't make enough sweeping stages to afford all this debt I've gotten myself into. Well, let's start by returning the yacht. Can I keep the cape? I know I can pay it off when I get my check. Then, yes, yeah, it looks good on you. Wow, I am going to think long and hard before opening another credit card. Oh, Ryan, I think you really learned something there about the way the decisions you make about money can have real consequences for you in the future. I really did, didn't I? What?!

What is that beautiful sound? Oh no, those are sea sirens. They use their song to enchant you. Where is it coming from? That's the most beautiful sound I've ever heard. I must go to them. No, don't do it, Ryan. I know the offer sounds good, but it's a trap. I'm turning the boat in your direction, my sweet sirens. I'll be there soon. No, Ryan, no!

Thanks for listening to Million Bazillion. We help dollars make more sense. If you're not done learning about credit cards, check out the tip sheet for this episode at our website, marketplace.org slash million. And if you want to keep getting smarter about money, sign up for the Million Bazillion Academy and get four weeks of lessons you can do at your own pace. Sign up today at marketplace.org slash MBA. In our next episode, we'll find out why some people find it so awkward to talk about money.

And if you have an idea for an episode or a question you want answered, send them to us at our website, marketplace.org slash million. Million Bazillion is brought to you by Marketplace and American Public Media. This episode was written and hosted by me, Ryan Perez, and Bridget Bodner, who's the senior producer, too. This episode was also produced by Marissa Cabrera with help from Tiffany Bowie, edited by Jasmine Romero and Sandon Cotton, sound designed by Chris Julin, and mixed by Becca Weinman.

Our theme music was created by Wonderly. Our digital producer is Tony Wagner. Donna Tam is the director of On Demand at Marketplace. Neil Scarborough is the VP and general manager. We are grateful for the voicing talents of Kimberly Adams, Sabree Beneshore, Kamisha Duncan, Samantha Fields, Chris Julin, Megan McCarty Carino, Jeff Peters, Mel Rosenberg, and Amy Scott.

And special thanks to the people who provided the startup funding for Million Bazillion and who continue to help us keep going. The Ranzetta Family Charitable Fund and NextGen Personal Finance, supporting Marketplace's work to make younger audiences smarter about the economy. To all the grown-ups listening right now, we hope that you and the kids in your life are having some great conversations about money thanks to Million Bazillion. Help us keep those conversations going. Donate today at marketplace.org slash givemillion. Your support means a whole lot.

Greetings, Marketplace listeners. It's Neil Scarborough, Vice President and General Manager of your favorite business shows. I'm coming to you today with an opportunity to help shape the future of economic journalism and philanthropy. Marketplace's parent company, American Public Media, is looking for board members, and we'd like to invite listeners like you to join either the APM Board of Trustees or the Marketplace Philanthropic Council.

If you believe in our mission to raise the economic intelligence of the nation, and if you love building community through public media, we're looking for strategic, innovative leaders to help ensure that Marketplace continues to evolve and expand its reach and impact across the country. Applications are open now through July 6th. Visit marketplace.org slash board to learn more. Thanks for your consideration and thanks for listening.