Finance is a huge term that addresses several things, including money and investment. It also sums up management, creation and the study of wealth. To speak in detail, it also deals with the list of utilities of debt and credit, investment in ongoing finance projects by planning and using future income flow and securities. You cannot complete the research on finance without understanding the value of money at any particular time, specific interest rates at different times, and other factors that keep changing from time to time.
Three major categories of finance
Though the term finance, as mentioned, is an elaborate one, to everyone’s convenience, one can segregate it into three different categories:
- Personal Finance
- Public Finance
- Corporate Finance
However, the list is not restricted to here only, and you cannot move ahead without learning about behavioral finance. It helps to trace the emotional, social, cognitive, and psychological reasoning behind why any financial decision takes place.
Points not to miss
The term finance is not very simple. It is a summation of investment, financial instruments, and, above all, the research and system of money.
Personal Finance
Personal finance is a term that constitutes a lot in it. It comprises your financial decisions and the entire set of activities of any particular entity or household. This also includes mortgage planning, budgeting, saving, insurance and those compulsory retirement plannings.
Public Finance
Public finance holds all the important parts of finance, including:
- Government expenditure
- Debt issue
- Budget pattern
- Tax system
It also includes all possible government issues.
Corporate Finance
Under corporate finance comes the assets, revenues, liabilities, assets and all other debts needed for any small business accountant.
History of the Finance
In the mid-twentieth century, finance emerged as a term, and people started researching it through the field of economics. Harry Markowitz, Myron Scholes, Fischer Black, William F and Sharpe are a few names that started studying it. Investing, banking and lending have been there since day one, but with a different name and prospects.
If you turn the pages of history and travel to 1800 BCE, you will find a discussion about the transactions done by the early Sumerians. It all started with the rules laid down for ownership and rent of land, employing labour in the field, giving and taking credit and the most important term, interest. The interest rates were not fixed at that time and depended on the things you borrowed- sacks of grains or silver pieces.
Then came the era of cowrie shells, which started in China in the early 1200 BCE. Coined money was a thing that started in the earliest millennium BCE. The name behind the coined money is King Croesus of Lydia. Lydia, which is now a part of Turkey, came up with it in 564 BCE. Next time when someone points at you by saying Rich as Croesus, don’t be surprised!
Temples were regarded as the safest place to preserve these valued coins in Rome, and a separate basement was made for them. One more reason behind it is the fact that people believed that Roman priests and workers in the temple were the purest and honest of all. Temples were also a place from where the loan was taken.
The Bottom Line
The term finance has a lot to say. You need to understand it more deeply instead of just understanding the basics. Next time someone asks you what finance is, share more than what you have read here!