What is Finance? Is it Important for You?

Finance is a word that evokes different feelings, but for the majority of people these are negative feelings. Millions think of it as some kind of breeding ground for evil schemes and conspiracies. Perhaps you belong to that group, and in your defence, the financial industry tends to attract a larger share of ill-willed individuals than most other industries, but my purpose for this article is to provide a more objective point of view so that, from now on, you can acquire the knowledge and develop the skills to navigate the financial world to your advantage.

The Standard Definition of Finance

I’d like to examine three definitions you can find online, from the most succinct to the most detailed, to then extrapolate the key points and come up with a definition that caters to the purpose of this channel, which is wealth education.

The Cambridge Dictionary defines it as “the management of a supply of money”.

According to Investopedia, “finance is a broad term that describes activities associated with banking, leverage or debt, credit, capital markets, money, and investments. Basically, finance represents money management and the process of acquiring needed funds. Finance also encompasses the oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial systems.”

https://www.investopedia.com/terms/f/finance.asp

Wikipedia’s definition is a lengthy one, but please bear with me: 

“Finance is a term for matters regarding the management, creation, and study of money and investments. Specifically, it deals with the questions of how and why an individual, company or government acquires the money needed – called capital in the company context – and how they spend or invest that money. ^[2] Finance is then often split per the following major categories: corporate, personal and public.

https://en.wikipedia.org/wiki/Finance

At the same time, and correspondingly, finance is about the overall system, the financial markets that allow the flow of money, via investments and other financial instruments, between and within these areas; this “flow” is facilitated by the financial services sector. A major focus within finance is thus investment management – called money management for individuals, and asset management for institutions – and finance then includes the associated activities of securities trading and stock broking, investment banking, financial engineering, and risk management.

Given its wide scope, finance is studied in several academic disciplines, and, correspondingly, there are several professional qualifications that can lead to the field.”

To sum it up, it is essentially three things:

– the management of money by individuals, companies, or nations;

– the infrastructure of institutions and instruments which allow money to be created, to increase or decrease, and to flow or be stored;

– the academic disciplines that study this system itself and the behaviour of the afore mentioned individuals, companies and nations regarding their money;

The Non-standard Definition of Finance

This is all fine and dandy, but I feel these definitions are lacking in a fundamental aspect: what is money, and what are the motivations behind it?

Money itself is a vast subject that I will explore in a future videos and articles, but suffice to say, it is a universal and efficient storage of value. It is merely an accepted system for humans to exchange things that have value for them, and the motivation of everyone is to be able to acquire more valuable things to improve their condition. When I say things, I mean anything material or immaterial, from emotions to houses.

Hence, I would like to finally provide a definition that incorporates the motivational side of money:

Finance is 

1. the study of how humans manage money through the regulation, infrastructure, tools and climate of any given period and 

2. the strategies they develop and apply to exert and maximise their value exchange capacity either as individuals, companies or nations.

I think this definition better reframes what it is and what it can do for you.

As I mentioned earlier, the mistrust of a large public is essentially directed at the institutions that provide tools for money management, but finance in an of itself is about how humans try to achieve more abundance in their life. Thus, if your goal is to increase monetary wealth in your life, you can benefit tremendously by learning how these institutions work, analysing their tools, developing a solid grasp of the regulation in your country or internationally, and acutely observing how individuals, families, companies and nations manage their money. This kind of multifaceted knowledge can be applied to devise and implement strategies to increase your value exchange capacity, or in other words, to have more money.

I want to thank you for making it to the end of the article.

This is the first in a series about effective financial education, which is one of several branches of knowledge I deem essential for wealth education. 

What do you think finance is? Please let me know in the comments, and if you would like to know more about money, finance, economics, entrepreneurship, investments, business, and mindset, stay tuned for more articles and subscribe to our YouTube channel!