importance of financial services essay

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Financial services are important due to the following reasons:

1. Economic Growth and Development: Financial services play a major role in the growth of the economy.

Banking, investment, savings, insurance, stock markets, debt, and equity shares, etc., help private entities as well as individuals to save funds, compete in the market and protect against risks and ambiguity.

It also helps in giving necessary credit to businesses both in the form of loans and working capital finance. Financial services assist the poor and the marginalized through specific financial programs.

These help the lower-income groups to come out of poverty and create wealth.

2. Contribution in GDP: Financial services form a major part of the GDP. Globally the financial sector is the largest in terms of earnings.

It has a wide variety of banks, credit card organizations, merchant bankers, stock exchanges, insurance companies, etc. These all contribute to the GDP of the nation.

3. Promotion of Liquidity: The financial services are providers of liquidity. The liquidity ensures that there is no shortage of finance both for long-term uses as well as short-term operations in the form of working capital finance.

Liquidity refers to cash and other assets that can be converted into cash quickly.

For example, the land is a less liquid asset than marketable securities because it takes time to convert the land into cash.

4. Generate Employment: The financial services are growing at a fast clip and are large providers of jobs to society. They also help to increase the scope of the financial markets.

They are also instrumental in attracting the much needed FDI for the growth of the economy. This is particularly necessary for a developing country like India.

5. Link between Savers and Investors: The financial services act as a channel between the savers and the spenders. It is a channel to collect the idle resources that are lying with the public and bring them into effective use.

It also ensures the continuous up-gradation of the technology levels and the capability of the economy and thus ensures sustainable growth.

6. Reduce Cost of Transaction and Borrowing: The financial services industry creates an infrastructure that lowers the cost of transaction and borrowing costs for borrowers.

It also increases the return that investors make by lending to borrowers. It leads to a saving mindset in the economy and thus helps in increasing growth prospects through the efficient use of resources.

These resources are used as cheap and affordable loans for the growing needs of the industry.

7. Minimises Situations of Asymmetric Information: FinanciM services ensure that all the participants in the market get access to information.

In other words, it removes situations of information asymmetry. This has a direct impact on the inclination and motivation of participants as they perceive a level playing field where everyone has the same information.

8. Financial Deepening and Broadening: Financial services also help in the twin objectives of financial deepening and financial broadening.

Financial deepening means a greater percentage of assets as a percentage of GDP, whereas financial broadening refers to an increase in the participants and also the options that are available in the form of financial instruments.

9. Helps in Projects Selection: Financial services aid in the selection of projects and not just a means of funding their execution.

It also creates a payment mechanism that ensures the smooth transfer of goods and services, resources across regions, and time zones.

10. Allocation of Risk: One of the biggest tasks performed by financial services is the optimization of risk. They pool the resources of the investors and allocate in such a manner that overall risk is mitigated.

Financial services also bring down the risk in the market by ensuring that all the participants have access to the required information, and there is no disparity.

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The Role of Finance in the Economy: Implications for Structural Reform of the Financial Sector

Subscribe to the economic studies bulletin, martin neil baily and martin neil baily senior fellow emeritus - economic studies , center on regulation and markets douglas j. elliott douglas j. elliott former brookings expert, partner - oliver wyman.

July 11, 2013

Executive Summary The U.S. financial system is critical to the functioning of the economy as a whole and banks are central to the financial system. In addition to providing substantial employment, finance serves three main purposes:

Credit provision . Credit fuels economic activity by allowing businesses to invest beyond their cash on hand, households to purchase homes without saving the entire cost in advance, and governments to smooth out their spending by mitigating the cyclical pattern of tax revenues and to invest in infrastructure projects. Banks directly provide a substantial amount of credit in the U.S., but, unlike in almost any other economy, financial markets are the ultimate providers of most credit.

Liquidity provision . Businesses and households need to have protection against unexpected needs for cash. Banks are the main direct providers of liquidity, both through offering demand deposits that can be withdrawn any time and by offering lines of credit. Further, banks and their affiliates are at the core of the financial markets, offering to buy and sell securities and related products at need, in large volumes, with relatively modest transaction costs. This latter role is particularly important in the U.S., given the dominance of markets, but is often under-appreciated.

Risk management services . Finance allows businesses and households to pool their risks from exposures to financial market and commodity price risks. Much of this is provided by banks through derivatives transactions. These have gotten a bad name due to excesses in the run-up to the financial crisis but the core derivatives activities provide valuable risk management services.

Many argue that the U.S. financial system grew overly large in the bubble period and is still too large today. We agree that some of the activities that took place in the bubble period involved taking on excess amounts of risk, but it is extremely hard to determine the right size of the financial system based on well-grounded economic theories. In truth, it is very difficult to judge the right size of almost any industry and attempts at the use of central planning and other mechanisms to correct assumed problems of this nature have usually failed.

Nonetheless, it is reasonable to assume that a sector will be too large if there are unwarranted economic subsidies flowing to it. This does appear to have been the case in the bubble and may still be the case, although such subsidies have been much reduced by a series of actions to remove government support and to force the financial industry to operate more safely.

However, we suspect the excessive size in the bubble period was considerably less than many argue and we believe it is important to be cautious in drawing policy conclusions as it seems impossible to prove whether the sector was or is too large and by how much.

There are a number of important proposals to force major changes in the structure of the financial industry, including to:

• Eliminate Too Big to Fail banks by forcing their break-up or downsizing
• Limit the functions of banks à la Glass Steagall or the Volcker Rule

Banks that are central to our financial system, whether through sheer size or the critical nature of the services they provide, are perceived by many to benefit from an implicit government guarantee that ought to be eliminated. The main categories of proposals are:

• Break up the largest banks
• Mandate a size limit
• Push large banks to shrink voluntarily by imposing stiff costs for size
• Put in place a credible plan for resolving the largest institutions

We do not favor the proposals to break up the banks or force them to shrink dramatically. We believe that the best analysis indicates considerable economic benefits to size and scope and that these advantages are likely to grow further with increasing globalization, complexity, and improved information and management systems. America should have at least a few financial institutions with global scale, capable of providing a wide range of related commercial and investment banking services, operating on a scale in individual product lines that produces real efficiency.

This will almost certainly mean these firms are important enough to the economy that the government and regulators will need to watch them particularly carefully and may create need for special assistance, in extreme crisis situations of the level that are unlikely to occur more than once or twice a century. For this reason, we agree on the need to designate systemically important financial institutions and to require them to operate with higher safety margins.

We believe that the societal benefits of breaking up the large banks are over-stated. The recent financial crisis was much more about system-wide problems than about issues resulting from excessive size of financial institutions. A simple thought experiment illustrates this. If we had broken up the big banks a decade ago into 10 or 20 pieces each, they would likely all or virtually all have made the same mistakes. They would have over-invested in real estate-related products, taken excessive risks across the board, created opaque and risky securitizations and derivatives products, pushed accounting rules to their limits, etc. The other players in the financial system would presumably also have made the same mistakes, including the ratings agencies, governments, central banks, regulators, and families and businesses. It is difficult to presume that the disaster would have been much different. Indeed, there is a chance that the clean-up would have been more difficult without the ability to pull 17 key CEOs into a room and force them to accept the TARP arrangements.

The next financial crisis will almost certainly differ from the last, as every such crisis varies, but it remains difficult to see how a system of many mid-sized banks would be appreciably safer than one with some large banks as part of the mix.

We do favor ensuring that even the most important banks can be resolved effectively without the use of taxpayer funds, except perhaps for relatively short-term liquidity purposes and backed by solid collateral. Dodd-Frank goes a long way towards achieving this goal, but more could be done.

Activity limitations

U.S. commercial banks and their affiliates have always faced limitations on the business they are allowed to undertake, in order to reduce the risk of business disasters that would endanger their ability to fulfill their critical role at the heart of the economic system.

These limitations were considerably extended in the Great Depression. The Glass-Steagall Act was passed, making it illegal for a commercial bank to be affiliated with an investment bank. The former could undertake the types of activities we normally associate with banking, such as taking deposits and lending. The latter were principally involved in the securities business, through helping firms raise capital by selling stocks and bonds, assisting investors in buying and selling those securities, and trading them for the investment bank’s own account.

The anti-affiliation provisions of Glass-Steagall were dramatically modified in the 1990’s, allowing commercial and investment banks to be part of the same financial group, although there remain a number of important restrictions to limit dealings within the group.

There is a range of proposals to further limit the ability of banks to operate in the securities and derivatives businesses. Some call for a restoration of the anti-affiliation provisions of Glass-Steagall. Others want Glass-Steagall Lite, since they recognize that changing times make it difficult to simply turn back the clock. The Volcker Rule is intended to separate out proprietary trading completely from commercial banks and investment banks.

We do not favor any of the major proposals for further structural divisions between commercial banking and securities and derivatives activities. We believe that the U.S. capital markets are world leaders and that their strength is an important economic advantage for America. Those markets are underpinned by the role of major securities dealers that are closely affiliated with commercial banks. A major reason for the close linkages is the desire of corporate customers to be able to deal with financial firms that can provide a solid range of products from financial advice to loans to securities offerings to risk management via derivatives to purely operational products. The institutional knowledge and relationships that a banking group has in regard to its corporate customers is a valuable advantage both for the bank and for those customers. 

Further, times have changed and will not change back. Glass-Steagall was based on a clear difference between a loan and a security, a difference that no longer exists now that most large loans are tradable among banks and also specialized investors. At this point, it is usually possible to structure a given transaction as a loan or a security or a derivatives transaction or often as insurance or another contractual arrangement.

Finally, any transition from the current system to an older-style system will create very considerable displacement of activities, with a real potential for problems. Some of this might occur through the divestiture of investment banking subsidiaries from banking groups, which would be the simplest approach; however even this would involve a large amount of change at a time when the U.S. economy remains in a fragile recovery that resulted in part from the disruption of the financial sector.   Another source of displacement would result from striving mid-level securities firms grabbing market share. Although this could bring advantages, it also creates the danger of a repeat of a situation such as developed at MF Global, where the push for growth overcame proper risk management practices.

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Fintech and the Future of Finance

Stay connected.

This report explores the implications of fintech and the digital transformation of financial services for market outcomes on one side, and regulation and supervision, on the other, and how these interact.

• Full Report
• Policy Summary
• Executive Summaries of All Technical Notes
• Overview Paper

Technical Notes

📖  Read the 2-page policy summary

Fintech, the application of digital technology to financial services, is reshaping the future of finance– a process that the COVID-19 pandemic has accelerated. The ongoing digitization of financial services and money creates opportunities to build more inclusive and efficient financial services and promote economic development. Fintech is transforming the financial sector landscape rapidly and is blurring the boundaries of both financial firms and the financial sector. This  presents a paradigm shift that has various policy implications, including:

• Foster beneficial innovation and competition, while managing the risks.
• Broaden monitoring horizons and re-assess regulatory perimeters as embedding of financial services blurs the boundaries of the financial sector.
• Be mindful of evolving policy tradeoffs as fintech adoption deepens.
• Review regulatory, supervisory, and oversight frameworks to ensure they remain fit for purpose and enable the authorities to foster a safe, efficient, and inclusive financial system.
• Anticipate market structure tendencies and proactively shape them to foster competition and contestability in the financial sector.
• Modernize and open up financial infrastructures to enable competition and contestability.
• Ensure public money remains fit for the digital world amid rapid advances in private money solutions.
• Pursue strong cross-border coordination and sharing of information and best practices, given the supra-national nature of fintech.

📖  Read the Full Overview Paper

Translations: Executive Summary

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Fintech and the Future of Finance: Market and Policy Implications

Blog series.

• Jul 13, 2023 Digital financial services bridging the SME financing gap
• Apr 19, 2023 Central banks and innovation
• Apr 17, 2023 Innovation in payments: Opportunities and challenges for EMDEs
• Mar 07, 2023 Embracing the promise of Fintech responsibly through regulation and supervision
• Feb 24, 2023 Fintech and financial services: Delivering for development

Global Patterns of Fintech Activity and Enabling Factors

The Fintech Activity note takes stock of available fintech-related data, to document patterns of fintech activity across the world, and to help identify enabling factors.

• 🠞 Executive Summary
• 🠞 Full Technical Note

Global Market Survey: Digital Technology and the Future of Finance Survey

The Fintech Market Participants Survey discusses findings from the survey whose responses span 330 market participants from 109 countries.

Fintech and the Digital Transformation of Financial Services

The Market Structure note draws on the underlying economics of financial services and their industrial organization to examine the implications of digital innovation for market structure and attendant policies.

Regulation and Supervision of Fintech

The Regulation note aims to provide regulators and supervisors in emerging markets and developing economies (EMDEs) with high-level guidance on how to approach the regulating and supervising of fintech.

Consumer Protection Implications of Fintech

The Consumer Protection note provides an overview of new manifestations of consumer risks that are significant and cross-cutting across four key fintech products: digital microcredit, P2PL, investment-based crowdfunding, ...

Innovation in Payments

The Payments note discusses the most significant innovations in payments and their key impacts and implications on users, banks and other payment service providers, regulators, and the overall structure of the payments ...

Fintech and SME Finance: Expanding Responsible Access

The SME note discusses policy and regulatory approaches that can facilitate access to finance for small and medium enterprises (SMEs) through digital financial services.

What Does Digital Money Mean for EMDEs?

The Digital Money note categorizes new digital money proposals including crypto-assets, stablecoins, and central bank digital currencies; assesses the supply and demand factors for their adoption; and lays out particular ...

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4 Key Roles in the Financial Services Industry

• 19 Apr 2022

If you’re considering a career in the financial services industry, you’re not alone: It currently employs over eight million people in the United States and is expected to grow eight percent by 2030 , adding over 750,000 jobs.

The financial services industry is multifaceted and encompasses a variety of job functions. It can be difficult to know which role you’d like to pursue based on your skills and aspirations.

“Many people find the world of finance very confusing,” says Harvard Business School Professor Mihir Desai in the online course Leading with Finance . “Who are these money managers, what do they do, and how does all this stuff work?”

The first step to entering the financial services industry is to demystify its key roles by exploring their responsibilities and how they work together to create a vibrant sector of the economy.

Access your free e-book today.

What Is the Financial Services Industry?

The financial services industry encompasses all roles that deal with managing and exchanging money. Sometimes called the financial sector or financial services sector, this industry includes segments such as banking, investing, insurance, and financial analysis.

Because those who work in financial services each have a distinct relationship with money, the financial services industry can be thought of as a mosaic: Each piece contributes to the bigger picture of how money is managed and exchanged.

“Finance isn’t really about money but about information and incentives,” Desai says in Leading with Finance.

The wide array of jobs within the financial services industry can pose a challenge when deciding your career path. Here’s a breakdown of four key roles in the financial services industry to help you determine your ideal position.

1. Accountants

Accountants are professionals who create, keep, and interpret financial records. They can either work for companies in-house or as third-party services. Accountants know all the ins and outs of a company’s finances based on its balance sheet , income statement , and cash flow statement , and they provide key insights to leaders based on the holistic perspective those statements create when assessed in tandem. These insights can be used to budget , invest, and make decisions that are in the best interest of a company’s financial health.

To be an accountant, you need strong attention to detail, the ability to recognize patterns, and communication skills to present findings in an accessible, actionable way.

An accountant’s responsibilities include:

• Creating and maintaining financial statements, as well as ensuring compliance with current regulations
• Reporting financial performance to business leaders
• Preparing and sending tax documents accurately and on time
• Identifying issues and opportunities to maximize profit
• Acting as the bridge between business owners, lenders, and investors by providing a clear picture of an organization’s finances

Related: Why Learn Accounting? 6 Benefits

2. Advisors

Like accountants, financial advisors help identify issues and opportunities in an organization’s financial statements and strategize for the future. They aren’t, however, responsible for maintaining financial records, reporting on performance, or preparing tax documents.

Financial advisors are required to pass several exams to become registered. Companies or individuals typically hire them to shed light on their current financial states and provide guidance on how to best move forward. They may be hired specifically in times of financial distress or at pivotal moments that require financial care.

A financial advisor’s responsibilities include:

• Assessing a company or individual’s financial standing
• Providing informed advice and guidance on how to proceed
• Acting with a company or individual’s best interest in mind at all times (called the fiduciary standard )

If you aim to become a financial advisor, it’s encouraged that you work in the field of finance to gain experience first. A secondary benefit to this is that employers may sponsor your financial education or industry licensure.

3. Analysts

Financial analysts have a big-picture understanding of the financial landscape and use it to inform analyses of individual companies’ finances. Analysts can be hired to work in-house for one company or have multiple clients in an agency setting.

Like accountants and advisors, analysts use financial information to help companies strategize for financial success. Unlike accountants, analysts don’t create or manage financial statements. And unlike advisors, they create predictive models to assess companies’ financial futures and industry outlooks.

While much of an analyst’s work consists of crunching numbers and analyzing data, it also involves data collection, which is often achieved by having conversations with key players in the field. Analysts may interview anyone in a company—from its chief financial officer to factory employees—to assess a company’s financial state.

An analyst’s responsibilities include:

• Gathering data—both qualitative and quantitative—about companies’ financial positions and trajectories
• Analyzing industry data and contextualizing companies within the industry’s broader financial outlook
• Creating predictive models to identify upcoming trends to help assess investments’ potential risks or other financial activities

Certifications aren’t required for becoming a financial analyst, but they can greatly improve your skills and job prospects.

Related: 4 Financial Analysis Skills All Managers Need

4. Institutional Investors and Portfolio Managers

Institutional investors are companies that invest money on behalf of others. Examples include mutual funds, pensions, insurance companies, and hedge funds.

Individuals who manage investment portfolios at these companies are called portfolio managers . They buy and sell investment securities (such as stocks, bonds, and alternative investments ) on behalf of their clients. Their roles require a great deal of industry knowledge and market trends.

A portfolio manager’s responsibilities include:

• Constructing and managing investment portfolios
• Customizing investment plans for individuals, taking their preferred risk and diversification levels into account
• Deciding when to buy and sell investments to maximize clients’ returns
• Communicating portfolio performance to clients on a periodic basis
• Understanding the impact their investment decisions have on the market as a whole and acting accordingly

Becoming a portfolio manager requires years of experience in the financial services industry. Many portfolio managers begin their careers as analysts. They build their skills, fulfill registration and licensure requirements, and work their way up to managing client portfolios.

How to Get a Job in Financial Services

If you want to start a career in the financial services industry, the first step is building your skills through education. If you’re an undergraduate student, consider majoring or minoring in finance, business, economics, or statistics. If graduate degrees work for your schedule and budget, consider a master of business administration (MBA) with a focus in finance or analytics.

Additionally, explore online certificate programs that provide foundational knowledge and deepen your expertise. Courses like Leading with Finance provide flexibility to learn wherever and whenever fits your schedule and are more affordable than degree programs—while providing instruction from world-class faculty.

Furthering your education can set you up for success when applying for finance roles and shows dedication to lifelong learning.

Although your network is important when applying to jobs in any industry, it’s especially so in financial services. If you have connections that can vouch for your abilities and character, you have a greater chance of landing an interview and breaking into the field—especially as an advisor or investment portfolio manager.

Another way to enter the field is to apply for entry-level roles that enable you to develop skills on the job. This way, you can work your way up within the industry, building on your previous experience and education each time.

If you’re already a seasoned business professional aiming to make a career switch, focus on leveling up your financial education to supplement your existing skills and set yourself up for success.

Do you want to use key financial principles to drive business performance? Explore our six-week course Leading with Finance , one of our online finance and accounting courses . Download our free course flowchart to determine which best aligns with your goals.

About the Author

The Importance of Financial Literacy

BRB Bottomline: Amidst a financial literacy crisis, unprecedented in scope and scale, where millions of Americans worry and struggle to make ends meet, why do we not mention financial literacy more? What is the cost of this epidemic in financial acumen and what are the steps we can take to rectify it?

For many of us, at the precipitous age between sheltered adolescence and mortifying adulthood, the very thought of managing our own finances is enough to induce panic-stricken vomiting and invites our basest tendencies to curl into the fetal position when under even the slightest duress. However, money really can be that terrifying—although it shouldn’t—and  there truly is an epidemic of missing financial acumen in our society that does warrant this response.

The State of Financial Literacy

We see the epidemic in the ballooning student debt that was $600 billion in 2006 and is nearly  $1.6 trillion  today. We see it in harrowing statistics such as how  one-third of Americans have $0 saved for retirement  or how nearly  40% of Americans carry credit card debt —with the average balance being $16,048. And, according to an independent report by  Forbes , the average cost of a four-year degree has doubled to nearly $105,000 over the last two decades, while real median wages have only risen a modest $5,000. While the cost of an education is increasing at astronomical rates, it seems the financial education of Americans isn’t matching the same upward trends.

And specifically for millennials research by the  National Endowment for Financial Education  conducted by GW University found that 69% of millennials awarded themselves a high self-assessment of financial knowledge, while only 23% showed basic financial literacy, and only 7% demonstrated high financial capability. Even having a college-backed education is associated with higher levels of debt across all sources of long-term debt (student loans, home mortgage, auto loan).

This disparity in perceived financial knowledge and actual financial knowledge can have immense and lasting repercussions. It’s one thing to not know a fact, but to believe that one knows, when in fact they don’t, will only work to exacerbate this endogenous and persistent problem.

Even basic financial literacy can have significant effects. According to a  2014 study by Lusardi and Mitchell  published in the Journal of Economic Literature, more financially-literate individuals are more likely to plan for retirement, invest in stocks, and make better refinancing decisions. These micro decisions—made daily and frequently—can have lasting long-term benefits.  Another paper by Lusardi and Bassa Scheresberg  found that financial illiteracy, especially among young adults aged 25-34, were more likely to engage with high-cost borrowing instruments such as payday loans, pawn shops, auto title loans, refund anticipation loans, and rent-to-own shops. These financial decisions, large and small, impact the wealth accumulation of individuals over a lifetime and contribute to generational cycles of poverty and social stratification.

But how do college students fare?

UC Berkeley students, in a nation-wide  Study on Collegiate Financial Wellness  conducted by the Ohio State University, reported very similar answers to their peers at 90 other institutions. To the statement, “I feel stressed about my personal finances in general,” 67% of students at four-year public universities (64.9% at UC Berkeley) agreed. On answering questions regarding financial knowledge, students at four-year public universities scored on average 3.38 out of 6 points, while the average UC Berkeley student scored 3.4 out of 6 points. The financial stress and crisis of students on our campus is a similar paradigm for students all over the country.

Students reported a significant amount of financial stress were found to have  lower academic performance while retaining a higher amount of debt , than those who did not hold this belief. College students with credit card debt of at least a $1000 were at  a higher connection to insufficient physical activity and binge drinking , among other unhealthy habits. And  78% of students who had attempted suicide  cited financial stress as a “primary reason” for their suicidal ideation.

And there are so many other metrics we can’t measure: We can’t see the effect of this epidemic on the number of children who miss meals at night because their families struggle to make rent and buy the groceries, or on the loss of potential contributions by brilliant students who drop out because they can’t afford the exorbitant cost of their education, or the number of missed workdays because a family can’t afford to see a doctor or keep affordable health insurance.

We often talk about social justice and inequality as rallying points for feel-good campaigns regarding systemic change. Lusardi and Mitchell, in their paper titled “Optimal Financial Knowledge and Wealth Inequality,” posit that financial literacy should be taught as something akin to human capital investment. (The idea that investing in people can increase productivity, and, in turn, profitability.) Their statistical analysis and estimates argue that over half of wealth inequality can be attributed to financial knowledge and the lack thereof.

Minorities and low-income households have less access to financial resources that only exacerbate the financial problems such demographics face. Students without savings accounts are less likely to go to college, and students with higher debt are more likely to drop out, further impacting their future earning potential. If we want to improve the lives of low-income and marginalized communities, then part of the answer exists within the discourse of financial education.

The Changing Landscape

The nature of our relationship with money has changed. Most people don’t carry a significant amount of cash on their person, instead opting for forms of virtual money and lines of credit. To be unable to see the transaction taking place before you—the physical exchange of money from your person to another—makes it that much easier to overspend and mismanage. In our modern-day society, with technology and innovation connecting us and our bank accounts at every turn—misleading ads and offerings of “best refinancing loan rates,” “cash advances” or “0% intro APR credit cards”—more than ever are the gaps in our financial acumen becoming dangerous blind spots with potentially life-changing ramifications.

As employer-provided direct benefit (pension) plans become increasingly rare in lieu of direct compensation (401k) plans, the burden of saving for one’s retirement falls on the financial acumen of the employee. This means that familiarity with financial instruments and long-term saving is crucial to one’s future. The individual must have the financial acumen to be able to save and contribute to their retirement fund while they are young, to reap the rewards of compounding interest.

As the next generation confronts ever more sophisticated financial instruments, it’s critical that financial education keep up.

However, the trends portend a different reality. In the United States, according to a  2018 survey by the Council for Economic Education , only 17 states have some form of personal finance requirement for high school graduation, and no new states have added such a requirement since 2016. Similarly, only 22 states require high schoolers to take an economics course prior to graduation. As clearly evidenced by the literature, financial literacy is crucial to the development and success of our youth, and of society. Yet, the workings of money elude the young American, and only later does it rear its unfamiliar, foreign head, and strike the hand originally meant to wield it.

If our education system is intended to prepare our youth to face the real world—to achieve success and live better lives than their predecessors—then why do we not emphasize the importance of their financial literacy?

Education Reform

Many of the financial literacy programs that exist cater to higher education students and young adults, presumably because this group faces the struggle of poor financial literacy most intimately and abruptly as they first enter the workforce or pay for exorbitant education costs; however, these programs are often reactive, rather than proactive. Financial literacy should be encouraged at the K-12 level to cement positive feedback loops of financial health.

At the state level, 40 states have financial literacy concepts embedded in their states’ curriculum, but, as mentioned above, only 17 states have graduation requirements for financial literacy. According to data by the National Conference of State Legislatures, 28 states and Puerto Rico pitched financial literacy legislation in the 2018 session, with 17 states enacting and adopting resolutions. While these numbers may seem encouraging, this is down from 2017 where 36 states had pending financial literacy legislation and 20 states enacted legislation or resolutions. More states should establish a discrete financial literacy requirement as it drives home the point that financial health is a uniquely important skill to learn.

Teachers, in order to educate students, need to be trained on financial topics and provided the resources necessary to teach these topics. A study of over 1200 K-12 teachers found that 89% believed that students should be required to take a financial literacy course to graduate high school, while less than 20% felt prepared or competent to teach such topics. Only 24 states provide tailored educational materials or resources designed to meet the states’ standards, as stated by an  independent report conducted by Brookings .

A study from Montana University  found that students from states with high school financial literacy requirements are more likely to apply for aid and receive more federal student loans while having less credit card debt and private loans. And these same students were linked to having higher credit scores after college, likely a consequence of their credit card and debt habits.

Program Recommendations

While much research has yet to be done regarding the most effective way to teach financial literacy, there are some common best practices. Financial literacy courses or curriculums need some sort of evaluative measure, whether it be a test or survey that compares pre-learning and post-learning levels of understanding. On one level this promotes accountability, but it also encourages active participation. Since financial literacy is so nuanced and diverse, learning through individual activities, field trips, and evaluative measures create interesting and engaging programs for children of all ages. 

Take Home Points

Mitchell and Lusardi, in the conclusion of their seminal paper on the  Economic Importance of Financial Literacy , wrote, “While the costs of raising financial literacy are likely to be substantial, so too are the costs of being liquidity-constrained, overindebted, and poor.”

This fight isn’t easy nor is it cheap. We must encourage lawmakers, both state-level and national, to prioritize financial literacy, support nonprofits and organizations working to rectify the disparity in financial knowledge, and empower schools and educators to teach their communities. There is much work and research to be done to improve the state of financial literacy in our nation and the world, but the cost of not doing so would be severe and lasting.

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The Importance of Financial Literacy and Its Impact on Financial Wellbeing

In this editorial, we provided an overview of the papers in the inaugural issue of the Journal of Financial Literacy and Wellbeing . They cover topics that are at the center of academic research, from the effects of financial education in school and the workplace to the importance of financial literacy for the macro-economy. They also cover financial inclusion and how financial literacy can promote the use of basic financial instruments, such as bank accounts. Moreover, they cover financial decision making in the context of complex instruments, such as mortgages, reverse mortgages, and crypto assets. The papers all share similar findings: financial literacy is low and often inadequate for making the types of financial decisions that are required today. Moreover, financial literacy is particularly low among already vulnerable groups. Importantly, financial literacy matters: it helps people make savvy financial decisions, including being less influenced by framing, better understand information that is provided to them, better understand the workings of insurance, and being more comfortable using basic financial instruments. In a nutshell, financial literacy improves financial wellbeing.

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Financial Statements Importance Essay

Financial control is “the control of financial resources as they flow out or into the organization” (Gupta 27). Financial control is necessary because it ensures an organization is on the right path towards its business goals. As well, financial control is necessary because it helps managers take “corrective” measures whenever necessary. The basic information used for financial control includes budgets, financial audits, and ratio analyses. Financial statements are essential because they provide the best information for proper financial control. Managers use budgets to measure performance and “control standards” across different departments in an organization (Gupta 64). A budget helps leaders coordinate the available projects and resources.

This makes it easier to evaluate the financial performance of different units in an organization. The other “information” used for financial control is “ratio analysis.” This assesses the financial position of a business organization. Some widely used financial ratios include debt and liquidity. Managers also use audits for financial control. According to Gupta (79), “auditing is necessary because it verifies the accuracy of financial statements and the accounting procedures used.” Audits are necessary because they ensure the financial position of a business is under control. A financial statement also presents the income of an organization within a specific period. This document ensures the organization’s financial position is carefully controlled.

A financial statement is an important “profile” of a business organization. The profile gives a wider picture of an organization’s financial position. That being the case, financial statements play a significant role in any given business or organization. The two main financial statements include an income statement and a balance sheet. A balance sheet (also called financial position statement) is a detailed summary of an organization’s financial “balances” (Pfeiffer and Dyckman 21).

A balance sheet gives a detailed “snapshot profile” of an organization’s financial position. It lists the assets, equities, and liabilities of the organization “as at the end of the business year.” Managers can use the statement to examine the existing difference between the company’s assets and liabilities. The document makes it easier for the manager to understand the “net worth” of a business. This is what determines the financial position of the business. An income statement is a financial document summarizing the actual performance of an organization within a specified period (Pfeiffer and Dyckman 28). A business manager can use the document to establish whether the organization has recorded any losses or profits during its financial year. That being the case, the statement helps the manager examine the financial performance of the organization.

More often than not, the performance of organizations in the same industry is more or less the same. That being the case, a manager can compare an organization’s performance with the existing industry norms. The approach will make it easier to understand the major factors affecting the performance of the major businesses in the industry. After understanding the existing industry norms, the manager will understand the specific factors influencing the performance of different organizations in the industry (Gupta 72).

The identified norms will help the manager have a wider picture of the opportunities, challenges, forces, and barriers that affect the respective companies in the industry. After recording such norms in a specific industry, the manager will then evaluate and understand the current performance of the organization. The performance of an organization, therefore, depends on the profitability or attractiveness of its industry (Pfeiffer and Dyckman 89). This explains how a manager can compare an organization’s performance with the industry norms to understand its current performance.

Works Cited

Gupta, Ambrish. Financial Accounting for Management: An Analytical Perspective. New Delhi: Magic International Pvt. Limited, 2009. Print.

Pfeiffer, Glenn, and R. Dyckman. Financial Accounting. Cambridge: Cambridge Business Publishers, 2008. Print.

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IvyPanda. (2020, May 13). Financial Statements Importance. https://ivypanda.com/essays/financial-statements-importance/

"Financial Statements Importance." IvyPanda , 13 May 2020, ivypanda.com/essays/financial-statements-importance/.

IvyPanda . (2020) 'Financial Statements Importance'. 13 May.

IvyPanda . 2020. "Financial Statements Importance." May 13, 2020. https://ivypanda.com/essays/financial-statements-importance/.

1. IvyPanda . "Financial Statements Importance." May 13, 2020. https://ivypanda.com/essays/financial-statements-importance/.

Bibliography

IvyPanda . "Financial Statements Importance." May 13, 2020. https://ivypanda.com/essays/financial-statements-importance/.

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Use of Large Language Models (LLMs): We welcome authors to use any tool that is suitable for preparing high-quality papers and research. However, we ask authors to keep in mind two important criteria. First, we expect papers to fully describe their methodology, and any tool that is important to that methodology, including the use of LLMs, should be described also. For example, authors should mention tools (including LLMs) that were used for data processing or filtering, visualization, facilitating or running experiments, and proving theorems. It may also be advisable to describe the use of LLMs in implementing the method (if this corresponds to an important, original, or non-standard component of the approach). Second, authors are responsible for the entire content of the paper, including all text and figures, so while authors are welcome to use any tool they wish for writing the paper, they must ensure that all text is correct and original.

Double-blind reviewing:   All submissions must be anonymized and may not contain any identifying information that may violate the double-blind reviewing policy.  This policy applies to any supplementary or linked material as well, including code.  If you are including links to any external material, it is your responsibility to guarantee anonymous browsing.  Please do not include acknowledgements at submission time. If you need to cite one of your own papers, you should do so with adequate anonymization to preserve double-blind reviewing.  For instance, write “In the previous work of Smith et al. [1]…” rather than “In our previous work [1]...”). If you need to cite one of your own papers that is in submission to NeurIPS and not available as a non-anonymous preprint, then include a copy of the cited anonymized submission in the supplementary material and write “Anonymous et al. [1] concurrently show...”). Any papers found to be violating this policy will be rejected.

OpenReview: We are using OpenReview to manage submissions. The reviews and author responses will not be public initially (but may be made public later, see below). As in previous years, submissions under review will be visible only to their assigned program committee. We will not be soliciting comments from the general public during the reviewing process. Anyone who plans to submit a paper as an author or a co-author will need to create (or update) their OpenReview profile by the full paper submission deadline. Your OpenReview profile can be edited by logging in and clicking on your name in https://openreview.net/ . This takes you to a URL "https://openreview.net/profile?id=~[Firstname]_[Lastname][n]" where the last part is your profile name, e.g., ~Wei_Zhang1. The OpenReview profiles must be up to date, with all publications by the authors, and their current affiliations. The easiest way to import publications is through DBLP but it is not required, see FAQ . Submissions without updated OpenReview profiles will be desk rejected. The information entered in the profile is critical for ensuring that conflicts of interest and reviewer matching are handled properly. Because of the rapid growth of NeurIPS, we request that all authors help with reviewing papers, if asked to do so. We need everyone’s help in maintaining the high scientific quality of NeurIPS.  

Please be aware that OpenReview has a moderation policy for newly created profiles: New profiles created without an institutional email will go through a moderation process that can take up to two weeks. New profiles created with an institutional email will be activated automatically.

Venue home page: https://openreview.net/group?id=NeurIPS.cc/2024/Conference

If you have any questions, please refer to the FAQ: https://openreview.net/faq

Ethics review: Reviewers and ACs may flag submissions for ethics review . Flagged submissions will be sent to an ethics review committee for comments. Comments from ethics reviewers will be considered by the primary reviewers and AC as part of their deliberation. They will also be visible to authors, who will have an opportunity to respond.  Ethics reviewers do not have the authority to reject papers, but in extreme cases papers may be rejected by the program chairs on ethical grounds, regardless of scientific quality or contribution.  

Preprints: The existence of non-anonymous preprints (on arXiv or other online repositories, personal websites, social media) will not result in rejection. If you choose to use the NeurIPS style for the preprint version, you must use the “preprint” option rather than the “final” option. Reviewers will be instructed not to actively look for such preprints, but encountering them will not constitute a conflict of interest. Authors may submit anonymized work to NeurIPS that is already available as a preprint (e.g., on arXiv) without citing it. Note that public versions of the submission should not say "Under review at NeurIPS" or similar.

Dual submissions: Submissions that are substantially similar to papers that the authors have previously published or submitted in parallel to other peer-reviewed venues with proceedings or journals may not be submitted to NeurIPS. Papers previously presented at workshops are permitted, so long as they did not appear in a conference proceedings (e.g., CVPRW proceedings), a journal or a book.  NeurIPS coordinates with other conferences to identify dual submissions.  The NeurIPS policy on dual submissions applies for the entire duration of the reviewing process.  Slicing contributions too thinly is discouraged.  The reviewing process will treat any other submission by an overlapping set of authors as prior work. If publishing one would render the other too incremental, both may be rejected.

Anti-collusion: NeurIPS does not tolerate any collusion whereby authors secretly cooperate with reviewers, ACs or SACs to obtain favorable reviews. 

Author responses:   Authors will have one week to view and respond to initial reviews. Author responses may not contain any identifying information that may violate the double-blind reviewing policy. Authors may not submit revisions of their paper or supplemental material, but may post their responses as a discussion in OpenReview. This is to reduce the burden on authors to have to revise their paper in a rush during the short rebuttal period.

After the initial response period, authors will be able to respond to any further reviewer/AC questions and comments by posting on the submission’s forum page. The program chairs reserve the right to solicit additional reviews after the initial author response period.  These reviews will become visible to the authors as they are added to OpenReview, and authors will have a chance to respond to them.

After the notification deadline, accepted and opted-in rejected papers will be made public and open for non-anonymous public commenting. Their anonymous reviews, meta-reviews, author responses and reviewer responses will also be made public. Authors of rejected papers will have two weeks after the notification deadline to opt in to make their deanonymized rejected papers public in OpenReview.  These papers are not counted as NeurIPS publications and will be shown as rejected in OpenReview.

Publication of accepted submissions:   Reviews, meta-reviews, and any discussion with the authors will be made public for accepted papers (but reviewer, area chair, and senior area chair identities will remain anonymous). Camera-ready papers will be due in advance of the conference. All camera-ready papers must include a funding disclosure . We strongly encourage accompanying code and data to be submitted with accepted papers when appropriate, as per the code submission policy . Authors will be allowed to make minor changes for a short period of time after the conference.

Contemporaneous Work: For the purpose of the reviewing process, papers that appeared online within two months of a submission will generally be considered "contemporaneous" in the sense that the submission will not be rejected on the basis of the comparison to contemporaneous work. Authors are still expected to cite and discuss contemporaneous work and perform empirical comparisons to the degree feasible. Any paper that influenced the submission is considered prior work and must be cited and discussed as such. Submissions that are very similar to contemporaneous work will undergo additional scrutiny to prevent cases of plagiarism and missing credit to prior work.

Plagiarism is prohibited by the NeurIPS Code of Conduct .

Other Tracks: Similarly to earlier years, we will host multiple tracks, such as datasets, competitions, tutorials as well as workshops, in addition to the main track for which this call for papers is intended. See the conference homepage for updates and calls for participation in these tracks. 

Experiments: As in past years, the program chairs will be measuring the quality and effectiveness of the review process via randomized controlled experiments. All experiments are independently reviewed and approved by an Institutional Review Board (IRB).

Financial Aid: Each paper may designate up to one (1) NeurIPS.cc account email address of a corresponding student author who confirms that they would need the support to attend the conference, and agrees to volunteer if they get selected. To be considered for Financial the student will also need to fill out the Financial Aid application when it becomes available.