The financial services industry provides a vital service to individuals, businesses and the economy. It helps people put their savings to work in the form of loans that allow them to purchase homes, cars or other large purchases. It lets them safeguard their health and property through insurance, and it allows entrepreneurs to start companies with the capital they need to grow and succeed. The strength of a nation’s economic growth depends on a healthy financial services sector.
Because of the importance of financial services, most governments regulate the industry to protect borrowers and savers alike. This regulation usually includes licensing and oversight. The industry is made up of many different sectors, and jobs within the sector can vary widely.
One of the most fundamental forms of financial services is banking, which involves collecting and storing money in checking accounts and other deposit products, lending funds to borrowers, and evaluating creditworthiness. These services can be offered by commercial banks, community banks and credit unions. Banks earn revenue by the spread between the interest rates they charge for loans and the rates they pay on deposits.
Another major component of financial services is investing, which includes managing, analyzing and trading assets like stocks, bonds and other securities. Investment managers, fund managers and private equity firms can help individuals and companies invest their money wisely to grow their wealth. These professionals often need to have a deep understanding of the markets and economies in which they operate.
In addition to investing and banking, the financial services industry includes insurance, which offers a safety net in case of unexpected expenses or disasters. This can include coverage against loss of income (life, disability and renters insurance), against damage to property or possessions (home, auto and credit card insurance), or against unforeseen medical costs and lawsuits (health, homeowners and car insurance). Insurance is also an important part of the overall financial services industry because it promotes saving habits among consumers by making it easier for them to afford premiums.
The final broad category of financial services is debt resolution, which involves helping people who are struggling with debt manage their finances and negotiate with creditors to settle or refinance their debts for less than they owe. This category also includes consumer credit counseling services and debt management companies.
Other specialized financial services include accounting and tax filing services, currency exchange and wire transfer services, credit card networks and services, and global payment providers like PayPal and Visa. These industries are supported by the broader financial services sector, which includes stock and commodities exchanges, market data vendors and ratings agencies. This industry is a big business, and it employs millions of people around the world in well-paying jobs. The more successful these businesses are, the better the economy and quality of life for everyone.