by STEVE MARTIN

As a finance professor, it is always interesting how many different answers I get when I ask finance students what finance actually is. Normally, their answers relate to money in some way, and range from “the study of money” to the “economics of money.” All of these are good answers. But, let’s take a closer look at what finance really is all about. After all if you are going to majoring in finance, or even want to learn about the topic, it might be a good idea to know what the term means.

At its most basic level, finance can be defined in two ways. First, it is a discipline. Second, it is an industry or field.

FINANCE AS A DISCIPLINE

Like English, math, or playing the piano finance can be thought of as a discipline. It includes a wide body of knowledge and skills that must be learned as a part of the discipline. This body of knowledge includes the study of money, the time value of money, investments, assets, liabilities, as well as the economic principles that underly these topics. And once learned, this knowledge can be applied to situations in way that helps one make sound financial decisions.

FINANCE AS AN INDUSTRY

Finance is also an industry or field. In this respect it encompasses banking, capital markets, investment banking, and real estate mortgage markets, to name just a few of the parts of the overall financial system. The finance industry focuses primarily on the acquisition, investment, and management of capital. While the discipline of finance is normally similar from country-to-country, often the economic and financial systems of different countries vary widely.

Now that we have split finance into its two primary ideas, it is important to recognize that we can also view finance in terms of the entities it serves. In this way, we can think of finance based on three subcategories: Personal, corporate, and governmental finance. Again, however, even though the specific industries that have formed around these three types are somewhat distinct, the basic financial principles (i.e., the discipline of finance) applies the same overreaching concepts.