The Financial Services Sector

Financial services are a key part of the economy. People often equate this sector with Wall Street and the stock exchanges that operate there, but it encompasses much more. Providers of financial services channel cash from savers to borrowers, redistribute risk (often by pooling it so that a large group of depositors or policy holders share the burden of lending to one or more borrowers) and add value for investors by making capital markets work. Banks, for example, make money by allowing depositors to shed the risk that their loans will default, while insurance companies make money by pooling deposits so that a single death does not wipe out an entire policyholder’s investment.

Many financial services are cyclical, meaning that they rise and fall with the economy. This can be beneficial for the industry, as it means that companies can hire more workers when times are good and lay off fewer staff during slow periods. However, it can also mean that job security is less certain for those working in the sector.

Despite this, there are still 2 billion people who lack access to financial services. These people often save money under their floorboards or in containers – a risky way to store and protect their assets. Financial services also help poor families acquire land, construct houses, purchase livestock and consumer durables, increase agricultural production and expand their businesses by giving them access to credit. This can lift people out of poverty and boost growth.