What Is Finance?

Investopedia defines finance as “a broad term that describes activities associated with banking,
leverage or debt, credit, capital markets, money, and investments.”

In practical terms, finance refers to all of the money-related decisions consumers, businesses, and
governments make on a daily, weekly, and yearly basis. It’s similar to accounting, but there is a key
difference:

 Accounting centers on the collection and analysis of financial information.

 Finance is more concerned with the implications that arise from employing various money
management strategies.

Whereas an accountant would seek to analyze financial data to produce a report, a finance expert
would be more inclined to synthesize that information to generate an actionable recommendation.

In other words, finance helps us make better decisions with our money and accounting enables us to
keep track of it. You use finance in innumerable everyday financial scenarios, such as:

 Making a budget for your groceries

 Deciding how much of your paycheck you want to save and how much you want to invest or
spend

 Considering whether to pay your credit card balance in full each month

Americans Need Better Financial Education

There's a real need in the United States for better financial education. Numerous studies have found
that most Americans are lacking when it comes to financial literacy:

 1 in 10 Americans say they are not very confident that the last time they made a big financial
decision (such as picking a credit card, buying a car, or refinancing their mortgage), they made
the right choice, according to the National Foundation for Credit Counseling (NFCC)
2019 Financial Literacy Survey.

 58% of Americans don’t have a budget, 25% don’t pay all their bills on time, and 5% have
debts in collection, according to the NFCC 2019 Financial Literacy Survey.

 Only 34% of Americans could answer five basic financial literacy questions, based on the
2018 Financial Capability in the United States report by the Financial Industry Regulatory
Authority (FINRA). The study found the number of survey respondents who can pass the
financial literacy test has been declining since 2009.

 Only 5 states—Alabama, Missouri, Tennessee, Utah, and Virginia—received an A grade for

their approach to teaching personal finance to high school students, according to Champlain
College's Center for Financial Literacy 2017 Financial Report Card, the most recent report
available.
Poor financial literacy and money mismanagement have a particularly insidious economic effect, as
many experts believe elevated household debt levels are among the causes of the last recession (for
examples, see this report from the Federal Reserve Bank of St. Louis and this interview with University
of Chicago economist and author Amir Sufi).

This lack of financial understanding among Americans is troublesome and underscores the great need
for financial education.