Why People in Finance Have So Much Money？

 When people browsing the news in finance, the title with an unbelievable mount of money can always catches their eyes, for example:

‘Stanhope merges with FWM to create $24.2bn wealth manager’

And people could see that:

London-based Stanhope runs $13bn in assets under management and oversees the investments of the Duchy of Lancaster, the £538m portfolio of property and financial assets owned by the Queen (Flood, 2020).

“People in finance just have so many money” They might say something like this. The same thing happened to me, when the first time my relatives and mates know about that I am a student major in finance, they said: “That is great! You will be rich after you find a job.”

 

Some people think that those people who working in financial industry can earn a lot of money and have a higher wage standard compare with other industry. Imagine a person in a suit and working in office could completing transactions values of hundred million in a couple of minutes, how does it down? Why does this person have this kind of capacity?

 

A teacher in university named Jack is keen on his position and working hard in his career of teaching, as his reputation raise, some companies are looking for help of him. Jack is glad to give a hand and the company will repay him. Jack and his family lived in a house provided by the university and no need to buy one, so by the time he retired he saved a bunch of money. At this time, one of his students, Lacy, wants to operate a supermarket, when she is raising money, she seeks help from Jack, and he is willing to lend money. Soon, Lacy made the business of the new supermarket prosperous. She did not forget the support of Jack at the beginning, so she returned money back to Jack with a considerable repay.

 

This is a good thing. For Jack, he gets more money by helping Lacy; for Lacy, she gets earning from supermarket and experience of operating it; for residents near the supermarket, they could easily buy something in this market and no need to go to a further one. It seems that everyone benefited from the construction of this supermarket.

Finance is just like that, it moves money (a scarce resource) from Jack (a saver) to Lacy (a borrower). Financial system is a bridge between savers and borrowers. If it is not Lacy but someone far away from Jack wants to operate a supermarket, then Jack may never know such a thing and the money would not lend out. Therefore, it is necessary to have some professional institutions or people to contact savers and borrowers around the world, for more specific, financial intermediary institutions which means customers give money to them and they will help customers to financing. For example, as a financial intermediary, the bank not only has strong contact ability (distributed in various regions), but also has a high reputation (‘Lacy’ will definitely give ‘Jack’ a return), and bank will take a ‘service fee’ from the return Lacy gives Jack. The more these institutions can find more savers and borrowers and timely connect them, the more ‘good thing’ will happen, and the better people's lives will be.

 

In example of Jack and Lacy, there is no intermediary and they just like finished a trade in a market which an area called ‘supermarket’ is set up, savers and borrowers about supermarket can get what they want and complete the transaction in this area, this is another connection platform in financial system called ‘financial market’. Lacy could borrow money from Jack with a commitment that half of the supermarket is belong to Jack, this is share market; and she could hold a whole supermarket but repay Jack later, this is bond market. In a market, merchant could provide their products, and customers could choose products which they what.

 

Where there borrowing, there is finance. So that is why that guy in suit seems so rich, money from borrower will stop in his hand for a period of time——this is the highlight and the most attractive part, but after, those money will flow to the place where need it.

Reference

Flood, C. (2020, November 24). Stanhope merges with FWM to create $24.2bn wealth manager. Retrieved from Financial Times: https://www.ft.com/content/299aeb69-8216-4b0e-b2be-b17172ad5e16