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- Hi everyone, Sal here.
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And in this video we're
gonna talk a little bit
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about how you pay for things.
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And you're probably
already familiar with this,
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but maybe we'll get into
a little bit more detail
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than you might have fully realized.
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So the most basic form of
payment is cash, like this.
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I'm sure that y'all are all
very familiar with this.
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And this has some advantages.
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It's accepted almost everywhere.
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In fact, by law it needs to be accepted.
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Although I have seen
a few situations where
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people don't wanna accept it,
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because you gotta carry it around,
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it might not be safe.
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Or they just might not have
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the change necessary to give you back
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whatever you need to get back in change.
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But that's what's useful about it.
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It's very simple, use it everywhere.
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You don't need technology.
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You don't need to plug into
some type of credit card system
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in order to verify that
someone has the funds
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because the cash is right there.
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The negatives,
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it's a little bit extra stuff
that you gotta carry around.
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It might not be so safe.
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And you have all of the
work of giving you cash,
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getting change, putting
that change in your pocket,
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then that change drops into your sofa
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and then you never see it again.
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And it's not the easiest to keep track of.
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If I withdraw a bunch of
cash from my bank account
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and then I use it on different things,
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later on when I go to my bank account
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I have no idea what I spent that money on.
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And so it's hard for doing
things like budgeting
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or keeping track of my finances.
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But cash is always
probably part of our mix.
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Now the next thing,
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and actually I'll talk about them together
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that you might be familiar with.
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When you just see what I'm
holding here, you say, oh,
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those are credit cards.
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But when you look a
little bit more closely,
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this one right over here is a credit card.
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And I covered up the important
information for good reason
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'cause I don't want you to
have my credit card number.
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And this is a debit card.
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Now they look the same and
they'll oftentimes say things
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like Visa on it or MasterCard on it
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because they're plugging
into that credit card system
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in order for payment.
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But what is happening
between a credit card
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and a debit card is
actually quite different.
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A debit card,
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the money is coming straight
from your bank account.
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So you spend $50 on your debit card,
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then when you go back to your bank account
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you're gonna see that it
just took that $50 out.
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A credit card on the other hand,
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you are borrowing that money.
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So you spend money on your
credit card, you're borrowing it
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from the credit card issuer.
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And you need to, well,
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if you do pay it on time, you
won't pay any interest on it.
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But then if you don't pay it on time
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you're essentially going to
continue to borrow that money.
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And we talk about that in other videos.
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And you could pay some
interest, and in fact,
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you'll probably pay
significant interest on it.
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So both of these can be very convenient.
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And oftentimes you'll
see credit card issuers
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give you all sorts of incentives.
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Things like, you could see
on mine it says cash rewards.
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They'll give you like 1%, 2%, 3%,
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maybe rewards for gas or for
travel or something like that.
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But you always have to think,
why are they doing that?
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Why are they giving you
back something of value?
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Well, because their statisticians know
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that a lot of people like that,
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but then they end up putting
a balance on their credit card
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and paying very, very high interest on it.
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And so it might pay off
for them in the long run
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to give you something back
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so that they can charge
you large interest.
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So be very careful.
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And also on the other side,
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there could be some benefits here
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above and beyond, on the credit card side,
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above and beyond just the
rewards they might give.
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There's sometimes a safety to it.
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For example, if someone
uses your credit card,
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some of the credit card issuers say, hey,
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if there's any fraud
or something like that
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we'll insure you to a certain amount.
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We can reverse that transaction.
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So there are also sometimes
some safety benefits to it.
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Now a debit card is actually,
even though it looks
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like a credit card, in a lot
of ways, it's very similar
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to a checkbook of old.
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The checkbook of old,
and I remember sitting
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in the checkout line
watching my mom write a check
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and they check her ID,
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and it takes a little bit
longer than you're used to
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at the checkout line.
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That had some issues with it.
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It took a long time to write the check
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and then people had to
validate that it's really you.
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There's no way for, or it's
very hard for the store,
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whoever you're purchasing from to know
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that you definitely have the funds.
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And if you don't, you end up with things
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like a bounced check.
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So a debit card kind of
takes advantage of that.
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They can verify that the funds are there
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and it's a lot faster.
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It has the convenience of a
credit card associated with it.
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But you still see a lot of people paying
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with things like checks for something,
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for example, something like rent.
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A lot of people might pay directly
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from their bank account
and do direct transfer,
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but you still see a lot of
folks paying with checks.
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Now those aren't the only ways
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that you could pay for something.
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You might see things like rent
to own, you rent something
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and then that contributes
to you eventually owning it.
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Stores might do that
because it's an incentive
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for you to at least start
renting, saying hey,
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maybe I could eventually own this thing.
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There's things like store
credit, which is oftentimes
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like a credit card, but
it's specific to that store.
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They might give you a discount,
other rewards for doing it.
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But at the end of the day,
they're doing it usually
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because they want to become
your credit card issuer
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or they want you to
spend more at that store.
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You also have installment agreements.
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Hey, it costs $1,000,
that's a lot all at once,
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but you could pay in 10
installments of $100 each.
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Once again, they're figuring
out ways for you to pay it.
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And last but not least, you
have things like layaway.
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When I was growing up, we had a store,
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my mom ran a school uniform store.
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And a lot of people sometimes
would put school uniforms
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on layaway.
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The reason for doing layaway,
which is essentially,
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you put a little bit of money
and the store will lay away,
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will put aside that article of clothing
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or whatever you're trying to buy.
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It has two benefits.
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One, you kind of reserve that item
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even if you don't have all
the money you need necessarily
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to buy that item yet.
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And also, it's a way of putting
a little bit of discipline.
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Hey, I already put $5
towards that $50 item.
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I'm gonna use it almost
like a little place to keep,
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I'm gonna keep putting $5 at a time
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so I don't get tempted to spend that
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and eventually I will
get that school uniform
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or whatever it is.
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So that's just a start.
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We could go into a lot
more depth in all of that.
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But hopefully that gives
you a little bit more nuance
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of all of the different
types of payments you may use
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or see other people use.
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And be thoughtful about,
hey, why am I using cash now?
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Or why am I using a debit card?
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Or why am I using a credit card?
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And what are the positives and negatives?