It is the process of channeling various funds in the form of credit, loans, or invested capital to those economic entities that most need them or can put them to the most productive use.
Basics of Finance
Banking, budgeting, saving, credit, debt, and investing are the pillars that underpin most of the financial decisions that we'll make in our lives.
What Is Financial Literacy?
Financial literacy is the ability to understand and make use of a variety of financial skills, including personal financial management, budgeting, and investing. It also means comprehending certain financial principles and concepts, such as the time value of money, compound interest, managing debt, and financial planning.
Achieving financial literacy can help individuals avoid making poor financial decisions and help them become self-sufficient and achieve financial stability. Key steps to attaining financial literacy include learning how to create a budget, track spending, pay off debt, and plan for retirement. Educating yourself on these topics also involves learning how money works, setting and achieving financial goals, becoming aware of unethical/discriminatory financial practices, and managing financial challenges that life throws your way
Types of Finance
Finance can be divided into three main categories, and all three play a huge role in our personal lives. Personal finance is unique to us as individuals, corporate finance affects our job and the companies we consume from, and public finance changes the expenditure of our taxpayer dollars.
1 – Personal Finance
Personal finance relates to all activities for budgeting, saving, investing, and strategizing given a person’s current financial constraints and abilities. Personal finance is very specific to each individual’s unique financial setting. But typically it depends on their annual earnings or salaries, living requirements and expenses, goals, and lifestyle preferences.
2 – Corporate Finance
Corporate finance is all financial activities for a business. It is typically its department but can occasionally be rolled up into accounting, investments, or general management.
Financial activities for a business would include budgeting current capital, capital for future years, funding and refinancing projects, and assets to ensure that the company has the best deal possible in the current market. Corporate finance also includes finding ways to raise additional funds, which could be through bondissues, finance offerings, or new investors.
3 – Public Finance
Public finance is all government activity related to money and money management. This includes taxation, government spending, budgeting, and any debtissuance (both to the government and from the government).
Another huge component of public finance is money management and strategy to ensure the economy continues to stay afloat. In the U.S., the Federal Reserve System ( called “the Fed”) creates all monetary policies to help the U.S. economy.
Purpose of Finance .
The answer is simple enough, but hardly ever spoken or acknowledged, which is a pity because purpose is the end towards which actions are directed. Purpose guides actions. Aristotle asked about the purpose of everything from medicine to generalship. (In case you are curious, for Aristotle, the end of medicine is health and the end of generalship is victory.) Every action and decision is done for the sake of an end, a purpose. The ancient Greeks, the Stoics, and the Scholastics knew and lived by this idea and even in a postmodern period modern humans still seek purpose. Why else is The Purpose Driven Life by Rick Warren the second most translated book in the world and the best selling hardback non-fiction book in history?
Just as many seek purpose to life, professionals in the broad sense, seek purpose in their work. A profession’s purpose is:
A reason for the work we do
A guide to decision and action
A noble purpose is probably more likely to engender good acts, although it does not guarantee every act will be good. Most professions have well articulated purposes. For example, as Aristotle will agree, the medical profession’s purpose is to help people be healthy. The legal profession’s purpose is to help people obtain justice. The teaching profession’s purpose is to help people learn. It is therefore, not in the least odd for the finance profession to profess a purpose.
Finance Related Templates by Execkart.
The purpose of finance is to help people save, manage, and raise money.
Finance needs to have its purpose enunciated and accepted. Students in finance should learn it in their business education. Perhaps the purpose should be taught even earlier at the elementary education level. Practitioners should be comfortable with the purpose of finance, knowing it implicitly and speaking it unabashedly. This acceptance and acknowledgement is a first step towards improving the culture of finance.
The improvement comes about through the crucial bit of the statement of purpose that is ethically charged: “To help people”. This phrase instills the notion of the “other” in finance. The idea of the other is where altruism and ethics begins. Secular moral philosophy from theories of justice to utilitarianism, concerns the other. The idea of helping the other also is widespread in religions from the Mosaic to the Eastern traditions. It is a basis of religious ethics. Christians are asked to love their neighbors, Muslims to show mercy to the less fortunate, and Buddhists to have compassion for sentient beings.
Where finance has fallen over the past half century is its gradual abandonment of an acknowledged purpose that entails the notion of helping people. Finance has been quantified for efficiency, made positivistic to escape the perceived quagmire of relativism, but quantification has led to the collective unconscious equating finance almost exclusively with money, neglecting the connecting link, people. So much so, spiritual leaders such as Pope Benedict and the Dalai Lama, feel the need to remind those who are inclined to listen, money (finance) is meant to serve people and people are not meant to serve money (finance).
What are the key aspects of finance?
(1) money and credit markets, which deals with the securities markets and financial institutions.
(2) investments, which focuses on the decisions made by both individuals and institutional investors.
(3) financial management, which involves decisions made