When two words sound like they are referring the same thing, it can be very easy to confuse them. While debt and deficit both feature prominently in the same kinds of discussions, they have wholly different meanings and are not at all interchangeable.
Whether we’re talking about Canada’s Stephen Harper, America’s Barack Obama or another other conversations related to government, the terms debt and deficit, particularly of the federal variety, seem to enter the discussion quite frequently.
So, what’s the difference?
A debt is an obligation to pay or do something. In the context of the financial world, it refers to the total money owed, usually as a result of borrowing. If you go and take out a $20,000 student loan to finance your higher education, then you are $20,000 in debt (not including interest and any other fees that may come into the picture). For a government, it is the total amount of money that it owes to its creditors.
From a more personal perspective, you may owe a debt to someone who helped you along the way. When a firefighter rescues someone from a burning building, the person rescued may feel like they are forever in the firefighter’s debt. There’s no money involved, but he or she may feel like something is owed to his or her hero.
A deficit, on the other hand, does not refer to the total amount owing. Instead, it refers to an incident where an entity (be it a person, government, or organization) spends more money than it receives within a defined time period. This fiscal period is usually one year. Based on its anticipated revenue via taxes and its anticipated expenditures, a government may say that it is expecting a budget deficit this year. If the reverse were true, and more money is received than spent, then the government has a budget surplus.
Just as debt can refer to things other than money, the same can be said about deficit. The meaning is slightly different, however. A deficit can refer to when the amount of something is lacking or insufficient. I wrote about the motivation deficit of a work-at-home entrepreneur, for instance. This lack of motivation is motivation is not a debt owed to someone; it simply refers to a shortage.
Words can be very tricky. That’s why I do what I can through freelance writing projects with my clients and through these Grammar 101 posts on Beyond the Rhetoric. It’s amazing how seemingly similar words can have entirely different meanings and usages.
I frequently come across the term “deficit” being used in sports commentary.
And that makes sense. When they say that one team is facing a “10 point deficit going into halftime,” it means that they are ten points behind in the current game. That’s a defined period of time, just a like a fiscal year for a company or government.
That is an example that perfectly shows that the words have different meanings. The team your example doesn’t owe the other team the 10 points (debt). Instead they are behind 10 points or in a deficit for the game based on the 0-0 score at the start of the game.