Financial services are a huge part of the economy, touching not just the biggest banks but smaller community financial institutions and even nonprofits. They’re all about money—whether it’s managing a credit card portfolio or helping people pay down debt, finance a business or save for retirement.
It’s easy to think of the term “financial services” as encompassing anything that involves money, but there’s actually a difference between financial goods and financial services. A financial good is something that lasts for a long time, like a mortgage loan to buy a home or car insurance. A financial service, on the other hand, is what helps you acquire that good. Banks, for example, provide the intermediation of cash, redistributing savings among many borrowers to reduce the risk that one borrower will default on their payments. Insurance companies, meanwhile, collect premiums from policy holders to cover the cost of paying out claims to those who’ve had accidents or other catastrophes that can devastate their finances.
The financial services sector encompasses all of these different products, as well as investment funding (including capital market and venture capital), accounting, credit and debt resolution, global payment networks like Visa and MasterCard, securities trading, money broking and a variety of other auxiliary services. The sector also includes the specialized professional services of actuaries, which are the experts who evaluate the risks and costs associated with insuring individuals and businesses, and financial consultants, which offer advice to companies and governments on financial planning.