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Last Updated: Thursday September 18 2008 14:43 GMT

What's so scary about the credit crunch?

Money in back pocket

Lots of people around the world are worried about something called the Credit Crunch.

You've probably heard your parents talking about it, or chatted about it yourselves at school.

It's getting blamed for lots of stuff, like food costing too much, and people not being able to go on holiday.

BUT WHAT EXACTLY IS IT?

The CREDIT CRUNCH is a big money mess that's causing problems throughout the world.

It basically means that banks have cracked down on how much money they lend to people.

That means it's much harder for people to borrow cash and get things like mortgages, which is a big sum of money to buy a house.

WHAT CAUSED IT?

A man with his hands on his head AFP/AFP/Getty Images
Most people put the cash they earn and any savings they have, into bank accounts to keep it safe.

Then, the banks lend it out to other people and other banks - but they have to trust that whoever they lend it to will pay it back.

When people start having problems paying each other back things start going wrong, and a credit crunch begins.

WHEN DID IT START?

It first began in America in 2007, but since then it's been spreading all around the world, because all the world's finances are linked together.

HOW'S IT AFFECTING US IN BRITAIN?

Some banks are doing really badly, which means people who work for them are losing their jobs.

Fewer people are buying houses, so property prices in some parts of the country are falling.

WHY DOES EVERYTHING SEEM REALLY EXPENSIVE?

Supermarket trolley
The credit crunch means it's harder for people to borrow money.

But at the same time, things like fuel and food are getting MORE expensive for other reasons, which is making the problem worse.

HOW WILL IT AFFECT ME?

You might notice your parents are being more careful with their money.

Money
People are being careful with their cash
Lots of people are cutting down on their spending, which means fewer people are splurging on things like expensive holidays.

But don't worry - it's not all bad. The government has promised that most of the money people have in their bank accounts will be protected whatever happens.