The financial services

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Financial Services and the Economy

Financial services are important to the world economy. It has an effect on a variety of macroeconomic metrics, including the Gross Domestic Product (GDP). It entails the transfer of funds from organizations with surplus funds to those in need. Banking, stock exchange, investment banking, insurance, financial assurance, compliance monitoring, and security issuance are examples of financial services. Individuals, nonprofit organizations, corporations, and government departments are among the customers served by the industry. Employees with specific skill sets are required in the industry. Traditionally, the employees have a history in banking.

Diversity in the Financial Services Industry

However, it also employs people from other professions such as Engineering, Science, and Physics.

The Impact of STEM Graduates

A highly educated workforce and the finance industry

The impact on the economy of employing graduates from elite universities with non-finance degrees such as Science, Technology, and Engineering, and Mathematics (STEM) has been phenomenal. They bring to the diverse industry skills that are crucial to its success. The productivity in the industry increases due to the abundance of technical expertise among graduates in engineering, science, technology, and mathematics. One of them is the application of numerical skills. Graduates of technical courses have strong Information Technology skills that are useful in the financial services industry. For instance, computer science graduates may have software development skills that are valuable in developing software for the financial services industry (Glabiszewski, 2015). Their expertise increases productivity in various financial services. The abundance of numeracy skills among STEM graduates encourages employers to consider them in the recruitment process, and therefore they move away from their traditional areas. It is because mathematical skills are transferrable. The graduates from technical non-financial areas also spur technological innovation. Due to their training, they have a better capacity to come up with technologies that are crucial for robust financial services. For instance, financial engineers use their skills in the development of the derivatives markets and other areas of finance. The technological innovation in the financial services sector has led to the growth of many companies. Technological innovation has also increased in the money transfer market and therefore deepening the access to financial services in many parts of the world (Glabiszewski, 2015). The GDP also grows when companies attract people from other educational backgrounds apart from finance. Their skills are transferrable, and therefore they complement the work of the finance graduates. It is because although finance graduates may possess skills that are important in the industry, they are some skills that they are not highly proficient in such as coding and software development. Graduates from technical courses, therefore, fill the gap and hence ensure the growth of the GDP.

401(k) and Retirement Benefits

401(k) plans are an important way that employees can save for retirement. Since the investment of funds from 401(k) plans are typically in mutual funds, their costs of mutual funds become an important factor in the GDP and government expenditure. Hidden mutual fund costs contribute to a reduction in the return on 401(k) plans and therefore little retirement benefits. Some of the costs in mutual funds are sales charges, redemption fees, expense ratios, and transaction commissions (Dvorak, 2013). High costs affect the life of retirees. Since the hidden costs of mutual funds reduce their earnings, they may not have sufficient funds for retirement. This then reduces the overall GDP. Some of the reasons for a reduced GDP are the reduction in the purchasing power of the retirees, and low consumer demand (Dvorak, 2013). Many retirees will not have a lower expenditure into the economy, which has an eventual impact on the economy by reducing the GDP. Low money supply for the retirees may also cause an increase in the interest rates, and hence reducing the GDP.

Influence of Mutual Fund Costs on Government Expenditure

The hidden costs of mutual funds can also influence government expenditure. It can do it by monetary and fiscal policies. First, high mutual fund costs will lead to a low amount of money available to the economy. The government can reverse this by enforcing the expansionist fiscal policy by increasing government spending. The programs provide a shift in aggregate demand and by stabilizing consumption and investment. The government, therefore, has a significant role to play in stabilizing the macroeconomic environment.


Dvorac, T. (2013) Do Mutual Fund Companies Eat Their Own Cooking? The Journal of Retirement, 1(2), 91-100.

Glabiszewski, W. (2015). The model of the absorption of innovative technologies in the financial services sector. International Journal of Business Excellence, 8(4), 471.

November 23, 2022

Economics Life


Personal Finance

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