The finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance. Financial services are the processes by which consumers and businesses acquire financial goods.

The financial services sector is a primary driver of a nation’s economy.

Types of Finance Since individuals, businesses, and government entities all need funding to operate, the finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance.

Personal Finance Financial planning involves analyzing the current financial position of individuals to formulate strategies for future needs within financial constraints.

Personal finance is specific to every individual’s situation and activity; therefore, financial strategies depend largely on the person’s earnings, living requirements, goals, and desires. Individuals must save for retirement, for example, which requires saving or investing enough money during their working lives to fund their long-term plans.

This type of financial management decision falls under personal finance. Personal finance includes the purchasing of financial products such as credit cards, insurance, mortgages, and various types of investments. Banking is also considered a component of personal finance since individuals use checking and savings accounts, and online or mobile payment services such as PayPal and Venmo.

Finance Corporate Finance Corporate finance refers to the financial activities related to running a corporation, usually with a division or department set up to oversee those financial activities. One example of corporate finance: A large company may have to decide whether to raise additional funds through a bond issue or stock offering. Investment banks may advise the firm on such considerations and help them market the securities. Startups may receive capital from angel investors or venture capitalists in exchange for a percentage of ownership.

If a company thrives and decides to go public, it will issue shares on a stock exchange through an initial public offering (IPO) to raise cash. In other cases, a company might be trying to budget its capital and decide which projects to finance and which to put on hold in order to grow the company. All of these types of decisions fall under corporate finance.

Public Finance Public finance includes tax, spending, budgeting, and debt issuance policies that affect how a government pays for the services it provides to the public.

The federal government helps prevent market failure by overseeing the allocation of resources, distribution of income, and economic stability. Regular funding is secured mostly through taxation. Borrowing from banks, insurance companies, and other nations also help finance government spending.

In addition to managing money in day-to-day operations, a government body also has social and fiscal responsibilities. A government is expected to ensure adequate social programs for its tax-paying citizens and to maintain a stable economy so that people can save and their money will be safe.

Financial Services Financial services are the processes by which consumers and businesses acquire financial goods. One straightforward example is the financial service offered by a payment system provider when it accepts and transfers funds between payers and recipients.

This includes accounts settled via checks, credit and debit cards, or electronic funds transfer. Financial services are not the same as financial goods. Financial goods are products, such as mortgages, stocks, bonds, and insurance policies; financial services are tasks—for example, the investment advice and management a financial advisor provides for a client.

The financial services sector is one of the most important segments of the economy. It drives a nation’s economy, providing the free flow of capital and liquidity in the marketplace. It is made up of a variety of financial firms, including banks, investment houses, finance companies, insurance companies, lenders, accounting services, and real estate brokers.

When this sector and a country’s economy are strong, it boosts consumer confidence and purchasing power.

When the financial services sector fails, it can drag down the economy and lead to a recession.

What Are Financial Activities?

Financial activities are the initiatives and transactions that businesses, governments, and individuals undertake as they seek to further their economic goals. They are activities that involve the inflow or outflow of money. Examples include buying and selling products (or assets), issuing stocks, initiating loans, and maintaining accounts. When a company sells shares and makes debt repayments, these are both financial activities.

Similarly, individuals and governments are involved in financial activities, such as taking out loans and levying taxes, which further specific monetary objectives.

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Partner Links Related Terms Finance Finance is a term for matters regarding the management, creation, and study of money and investments. more Economics Economics is a branch of social science focused on the production, distribution, and consumption of goods and services.

Personal Finance Personal finance is all about managing your personal budget and how to best invest your money to realize your goals.

Federal Reserve Regulations Definition Federal Reserve regulations are rules put in place by the Federal Reserve Board to regulate the practices of banking and lending institutions, usually in response to laws enacted by the Congress.

Macro Environment The macro-environment refers to the overall condition of the economy, as opposed to the well-being of a particular sector or region.

State Bank Definition A state bank is a financial institution that a state has chartered primarily to provide commercial banking services.

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