Financial services are the products and operations that provide access to the money necessary for individuals and businesses to buy goods, pay bills, and invest in projects. They include everything from bank loans to credit card payments and even stock exchanges. The industry is incredibly broad and encompasses both for-profit enterprises and nonprofit organizations that offer counseling or wealth management services.
A key aspect of financial services is intermediation, which involves channeling cash from savers to borrowers. For instance, banks accept depositors’ money and then lend it out to borrowers, earning interest on the difference between the amount they pay depositors and what they receive from loanees. Insurance companies also perform this function, accumulating funds from many policy holders and then using that pooled cash to reimburse those who experience financial loss.
Those that work in financial services are responsible for helping society manage its risk, encouraging economic growth, and fostering innovation. They do so by offering businesses the capital they need to expand and hire workers, while enabling consumers to borrow for big purchases and manage risks like medical emergencies or unemployment.
But a financial service isn’t the same as a financial good, which is something tangible that lasts for an extended period of time, such as a mortgage loan or car insurance policy. A financial service is what enables the acquisition of that financial good, such as the process of applying for a mortgage or shopping for an insurance policy. This is why it’s important to understand the distinction between these terms when considering a career in financial services.
