How Is Finance Defined?
Finance is the practice of acquiring and managing money. It includes activities such as:
These activities enable the operation of households, companies, and even nations. Finance also includes the oversight of financial activities and the study of their effects.
Categories of Finance
Finance can involve something as small as a personal checking account or as large as government debt. There are three main types of finance: personal, corporate, and public.
Personal finance is also known as individual, household, or consumer finance. It is the management of a person's assets and debts.
Personal finance determines how you manage your income, pay off debt, budget your spending, and invest in the markets. Personal finance matters also include taxes, banking, credit, loans, and insurance.
Corporate finance, also known as business finance, is concerned with the effective use of money for commercial purposes. It determines how a corporation raises the funds it needs to conduct business, as well as how it will reinvest its profits or distribute them to shareholders. Maximizing profitability is a primary concern for business finance.
Nonprofit finance is the management of money for a nonprofit organization. Rather than maximizing profits, nonprofits are focused on the efficient use of money to grow their organization and better fulfill their mission.
Public finance is the management of funds for public use, as in government. The government raises revenue, typically through taxes, fees, and fines, and spends it on public programs and improvements.
A government may borrow money to meet its obligations, in which case it must pay its debts. If a government has spent more than what it brings in, it is said to be in deficit; if it spends less, it is called a surplus.
Because governments control taxation and influence interest rates, public finance can affect private finance. Governments can regulate financial activity through regulatory agencies.
Many regulatory agencies exist to keep financial services in check, maintain confidence in the economic system, and protect customers. For example, the Federal Reserve Board ("the Fed") oversees banking and the purchase of federal securities and can influence interest rates, while the Federal Deposit Insurance Corporation (FDIC) protects bank deposits up to $250,000 per depositor. The Securities and Exchange Commission (SEC) regulates U.S. stock exchanges, and the National Credit Union Administration oversees credit unions.
Financial management is the planning and execution of financial decisions in pursuit of a goal. It involves procuring money and controlling and monitoring its efficient use, balancing risk against growth. Financial management is different from financial services, although you may use financial services to manage finances.
Financial services are economic services provided by companies in the finance industry. They deal with the management of money, including financial transactions as well as the transfer of data and information. Some examples of financial services include:
Financial services can be consumer-oriented, such as with personal banking, credit cards, or mortgage brokers, or they can be commercial, offering services to corporations.
Financial careers span the breadth of the finance industry. A financial service provider might be a mortgage broker, an insurance agent, or a wealth management advisor. Other jobs include bankers, financial planners, financial analysts, actuaries, and accountants. Many financial careers require training or secondary education and an aptitude for numbers.