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What is the Definition of Finance? |
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Finance is a complex term. It can be both a verb and a transitive noun. And like many complicated terms, this one means different things to different people. There are also different levels of finance, from personal finances to government finances.
Finance is a system. It includes the circulation of money, and the granting of credit. It also involves the making of investments. Banks are an important part of finance, as they grant loans, checking and savings accounts, and can provide investment management assistance. Finance, as a system, incorporates the movement of money from one source to another, like from a Discover credit card to an EBay store, or from a savings account to an investment fund.
Finance can also refer to the management of funds. By taking a look at how individuals and businesses earn and spend money, you get a fairly accurate picture of the economy. If businesses are making a lot of money and paying their employees well, the economy, at least locally, is in good shape. When businesses are not making enough money and are forced to pay workers less or even lay them off, the economy is affected negatively.
Used as a verb, finance refers to the means of funding a project or big-ticket item. The word can mean both the money you have, as a lender or beneficiary, or as a line of credit. This is different from obtaining a Discover credit card or some other form of widely available funding. Financing is generally reserved for the purchase of cars, furniture, or your first home. Since borrowers are using a larger chunk of money, lenders generally require a decent credit score and can offer a slightly lower interest rate than a credit card.
Personal finance is the management of money for one person or a family. How much money an individual or family need to pay for their wants and needs, and where does that money come from? Also included in personal finance is how credit can affect the financial standing of an individual. Those with bad credit may have a harder time financially than those with good, or even average, credit. So if you have outstanding Discover credit card payments, for example, or you defaulted on your Citibank student loan, you may have a harder time down the road.
The money management technique of businesses is called corporate finance. Corporations have many of the same financial concerns as individuals, such as where money is coming from and how to spend it. For a business, though, these issues are addressed on a much larger scale. Corporate finance involves weighing risks with the potential for profit. If a corporation makes smart financial decisions, they can increase their profit. But in the high-stakes game of corporate finance, it may only take one or two bad choices to send a business into bankruptcy.
Public finance involves money management at the government level. Governments raise revenue through taxes and spent, according to a budget, for things like smooth roads and updated school text books. The needs of local residents in a small town, a state, or the whole country, dictate the use of public money and citizens are encouraged to vote if they don’t like the way that money is being spent. If there is not enough money for everything in the budget, the money for some programs may be decreased or cut out entirely. If there is more money than is needed, the government may save it in case of a budget deficit some other year, or they may choose to lower taxes.
The term finance encompasses many different concepts. It can be used to study the circulation of money, and as a way to provide capital for a new business. Finance is also a branch of mathematics, and of sociology. Money is a central part of life in capitalistic societies, such as in the United States. It has an effect of how lives are lived. Studying finance, in all of its uses, is a way of studying life. | | | | |
