The Big Picture of Finance

This was a fun video to make… a high level discussion of the importance of finance. Check it out!

VIDEO SUMMARY

This video is on the Big Picture of Finance. If you work in finance you will spend a lot of time generating financial reports, calculating equations, and sifting through data. It is really easy to get caught up in the details and lose sight of what is going on at a bigger scale. And it is so important to always remember the big picture, because it is so amazing.

Finance is an important role that enables the flow of capital through economies. That is what is happening on a larger scale. Let me explain how this works. Over the course of someone’s career, they go through three phases: Young economy phase, Wealth building phase, Investing phase.

Let’s start with the young economy. When someone just starts out their career, they are not very experienced. These are young people. They usually don’t make high salaries, because they are still learning, and figuring out how they can add value to the economy. But what these young people bring is very important. They bring a lot of energy and new ideas into the economy. So you have this new wave of young professionals with new ways of looking at things, and new ideas on ways to make money.

The next phase is the Wealth Building Phase. What happens over time, is people gain more experience, they become more productive, and they can command higher salaries. What you’ve done, is you have taken your new ideas from the young economy phase, and figured out how to make money from those ideas. As you start making more money, you start accumulating wealth. So people spend a good chunk of their life, creating value for society and making money in the process.

The final phase is the investing Phase. So at some point, you have made all this money, and you want to start investing it. What I am really talking about is the switch from living off your investments versus living off your salary. For many people, this is the stage they go into retirement. At some point you are going to think about stepping back from the work force. Your interests are going to start changing. You are going to start thinking about living off the money you have accumulated, rather than how to create new value in the market.

So those are the three stages. Now this is just a generalization, and there is cross-over between the phases. But in general, this is what we see when we look at economies. People start out in a career. They build wealth. And they live off their investments. Now here is the cool part. In order for these phases to work effectively, we need something called “capital markets.” You need some method for the older generation to transfer their wealth to the younger generation, through investments. Finance provides the means for someone with wealth to look at young people and decide, “where is the best ideas” “what place to invest would generate the most value.” So finance is a set of tools, reports, and processes to help you make those decisions.

So it is this movement of capital from the old generation to the new generation is how society continues to grow and develop. We are all going to die someday. Our wealth gets passed on to the next generation who become the next business leaders.

So this is what you have to realize. If you are an accountant, or you’re a financial analyst. What you are doing is participating in the flow of capital across the economy. The whole point of creating a set of reliable financial statements is so you can participate in capital markets. This is a sacred responsibility. So to an outside observer, it might look like you are just moving papers around your desk, but what is really happening is you are playing a very important role in making our economy work.

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Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.