What is debt?

Debt is when you borrow something now and promise to give it back later.

Imagine you want a new toy, but you don’t have enough money right now. So you ask your friend for $10 to buy the toy today. You tell them you’ll pay them back in two weeks with $10 plus an extra $2 as a thank-you. That extra $2 is like interest, it’s a little extra you give because you borrowed the money.

When you borrow money, you’re taking on debt. You might use it to buy something fun or helpful, like a bike or a game. But later, you have to remember to pay it back. If you don’t, your friend (or someone else) might remind you, or even take away some of your favorite snacks!

Sometimes grown-ups borrow money for bigger things, like a house or a car. They make a special agreement with the person they borrowed from, and that’s how debt works in the real world too.