Types of Finance and Financial Services (2024)

Finance is a broad term that describes activities associated with banking, leverage or debt, credit, capital markets, money, and investments.

Essentially, finance represents money management and the process of acquiring needed funds. Finance also encompassesthe oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial systems.

Many of the basic concepts in finance originate from microeconomic and macroeconomic theories.One of the most fundamental theories is the time value of money, which states that a dollar today is worth more than a dollar in the future.

Key Takeaways

  • Finance encompasses banking, leverage or debt, credit, capital markets, money, investments, and the creation and oversight of financial systems.
  • Basic financial concepts are based on microeconomic and macroeconomic theories.
  • The finance field includes three main subcategories: personal finance, corporate finance, and public (government)finance.
  • Consumers and businesses use financial services to acquire financial goods and achieve financial goals.
  • The financial services sector is a primary driver of a nation’s economy.

Types of Finance

Individuals, businesses, and government entities all need funding to operate. Therefore, the finance field includes three main subcategories:

  • Personal finance
  • Corporate finance
  • Public (government)finance

1. Personal Finance

Personal finance is specific to an individual’s situation and activity. Therefore, related financial strategies depend largely on a person’searnings,living requirements, goals, and desires. Financial planning involves analyzing the current financial position of individuals to formulate strategiesfor futureneedswithin financial constraints.

For example, individuals must save for retirement. That requires saving or investing enough money during their working lives tofundtheir long-term plans. This type of financial management decision falls under personal finance.

Personal finance covers a range of activities, including using or purchasing financial products such ascredit cards,insurance,mortgages,and various types ofinvestments.

Banking is also considered a component of personal finance because individuals use checking and savings accountsas well as online or mobile payment services such as PayPal and Venmo.

2. Corporate Finance

Corporate finance refers to the financial activities related to running a corporation. A division or department usually is set up to oversee those financial activities.

For example, alarge 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 it market the securities.

Startups may receivecapitalfromangel investorsorventure capitalistsin 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, to budget its capital properly and effectively, a company with growth goals may need to decide which projects to finance and which to put on hold.

All of these types of decisions fall under corporate finance.

3. Public Finance

Public financeincludestaxing, spending, budgeting, and debt-issuance policies that affect how a government pays for the services it provides to the public. It is a part of fiscal policy.

The federal and state governments help prevent market failure by overseeing the allocation of resources, the distribution of income, and economic stability. Regular fundingis secured mostly throughtaxation. Borrowing from banks, insurance companies, and other nations also helps 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 taxpaying citizens. It must maintain a stable economy so that people can save and be assured that their money will be safe.

Financial services are not the same as financial goods. Financial goods are products, such as mortgages, stocks, bonds, and insurance policies. Financial services are services offered by financial entities. The investment advice and management a financial advisor provides for a client is one example of financial services.

Financial Services

Financial services are the services that allow consumers and businesses to 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, and electronic funds transfers.

The financial services sector is one of the most important segments of the economy. It helps drive a nation’s economy, providing the free flow of capital and liquidity in the marketplace.

The financial services sector 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, consumer confidence and purchasing power rise. 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, it is engaging in financial activities. Similarly, individuals and governments are involved in financial activities when they take out loans and levy taxes, which further specific monetary objectives.

What Is Finance?

The term "finance" refers to financial activities that support the lives of individuals, businesses, and governments. Some of those activities include banking, borrowing, saving, and investing. Finance also refers to the study of money and financial tools that are part of a country's financial system.

Is the Financial Services Industry Important?

Yes. Companies that offer financial services have always been important because they help facilitate for individuals and businesses transactions that involve money. The financial services industry is also important for its role in the health of a country's economy. According to EIU research, the financial services industry represents around 20% of the global economy.

What Is Personal Finance?

Personal finance involves planning, implementing, and managing financial activities that impact individuals. These activities can include earning an income, spending money, saving and investing, and borrowing.

Types of Finance and Financial Services (2024)

FAQs

What are 3 examples of financial services? ›

All services related to money are considered financial services. Banking, mortgages, credit cards, payment services, tax preparation and planning, accounting, and investing are types of financial services industries. Financial services are frequently the exclusive domain of businesses and professionals.

What are the 3 major types of financial? ›

The finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance.

What are the 4 areas of finance? ›

Finance is the management of money which includes investing, borrowing, lending, budgeting, saving and forecasting. There are four main areas of finance: banks, institutions, public accounting and corporate.

What are the 4 main services that most people use at a financial institution? ›

Individual Banking—Banks typically offer a variety of services to assist individuals in managing their finances, including:
  • Checking accounts.
  • Savings accounts.
  • Debit & credit cards.
  • Insurance*
  • Wealth management.

What are basic financial services? ›

The financial sector covers many different types of transactions in such areas as real estate, consumer finance, banking, and insurance. It also covers a broad spectrum of investment funding, including securities (see box).

What are the major financial services? ›

The financial services sector consists of banking, investing, taxes, real estate, and insurance, all of which provide different financial services to people and corporations.

What are the basic types of finance? ›

Finance can be divided broadly into three distinct categories: public finance, corporate finance, and personal finance. More recent subcategories of finance include social finance and behavioral finance.

What are the three 3 elements of financial management? ›

Most financial management plans will break them down into four elements commonly recognised in financial management. These four elements are planning, controlling, organising & directing, and decision making. With a structure and plan that follows this, a business may find that it isn't as overwhelming as it seems.

How many types of financing are there? ›

There are two types of financing: equity financing and debt financing. The main advantage of equity financing is that there is no obligation to repay the money acquired through it. Equity financing places no additional financial burden on the company, though the downside is quite large.

What are the five areas of personal finance? ›

Areas of Personal Finance. The five areas of personal finance are income, saving, spending, investing, and protection.

What are the 5 areas of financial planning? ›

When conducting your financial analysis, we take a look at the five main areas of financial planning:
  • Protection. ...
  • Estate Planning Strategies. ...
  • Retirement Planning. ...
  • Investment Planning. ...
  • Tax Planning.

What are the 4 main functions of finance? ›

Finance functions cover Investment (allocating funds to assets for growth), Dividend (deciding on profit distribution to shareholders), Financing (raising capital through equity or debt), and Liquidity (ensuring sufficient cash flow for operations).

What are the six types of financial institutions? ›

Types of financial institutions include:
  • Banks.
  • Credit unions.
  • Community development financial institutions.
  • Utilities.
  • Government lenders.
  • Specialized lenders.

What are the five types of bank accounts? ›

Different Types of Bank Accounts in India
  • Current account. A current account is a deposit account for traders, business owners, and entrepreneurs, who need to make and receive payments more often than others. ...
  • Savings account. ...
  • Salary account. ...
  • Fixed deposit account. ...
  • Recurring deposit account. ...
  • NRI accounts.

What are the five most important banking services? ›

The 5 most important banking services are checking and savings accounts, loan and mortgage services, wealth management, providing Credit and Debit Cards, Overdraft services. You can read about the Types of Banks in India – Category and Functions of Banks in India in the given link.

What is financial services and examples? ›

Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds, individual ...

What are the three 3 three commonly used financial statements? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

What are the top 10 financial companies? ›

Top 10 Banks in the US in 2021 by Revenues
  • JPMorgan Chase & Co. Financial Services. ...
  • Bank of America Corp. Financial Services. ...
  • Citigroup Inc. Financial Services. ...
  • Wells Fargo & Co. Financial Services. ...
  • The Goldman Sachs Group Inc. Financial Services. ...
  • Morgan Stanley. Financial Services. ...
  • Capital One Financial Corp. ...
  • U.S. Bancorp.

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