Financial services encompass everything that has to do with money. It’s an industry that touches everyone from large multinational corporations to small community banks to nonprofits providing counseling services and money management advice. It also includes all the activities that go into managing risk, investing, and transferring money between people and businesses.
While it may seem that a financial service is simply a good, such as a mortgage or insurance policy, the distinction between a financial good and a financial service is important. A financial good is something tangible that lasts a long or short period of time, such as a house or car, while a financial service is the process involved in acquiring a financial good.
A key aspect of financial services is intermediation — helping people with cash to invest and lending money to those who need it. This allows savers to get higher returns on their investments and helps borrowers avoid accumulating debt, which can cripple them. Financial services also redistribute risk by aggregating the savings of many depositors and pooling them with the funds of many borrowers, reducing the likelihood that a single event will wipe out an entire investment portfolio.
To enter the field, a bachelor’s degree in finance or economics is typically required, although a master’s or even a PhD can improve your chances of finding a job in this sector. Your network is also crucial for breaking into this sector, particularly if you want to move up the ranks quickly. And as with any industry, it pays to work hard and prove yourself early on — since many firms promote employees based on aptitude rather than tenure.