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.
Types of Finance
Individuals, businesses, and government entities all need funding to operate. Therefore, the finance field includes three main subcategories:
Public (government) finance
- Personal Finance
Personal finance is specific to an individual’s situation and activity. Therefore, related financial strategies depend largely on a person’s earnings, living requirements, goals, and desires.
Personal finance covers a range of activities, including using or purchasing financial products such as credit cards, insurance, mortgages, and various types of investments.
Banking is also considered a component of personal finance because individuals use checking and savings accounts as well as online or mobile payment services such as PayPal and Venmo.
- 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, 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 it 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, 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.
- 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. 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 funding is secured mostly through taxation. Borrowing from banks, insurance companies, and other nations also help finance government spending.
Written by uchechukwu uzougbo