Differences between public and private finance: I hope we’ve all heard of the term ‘Finance‘ before, but what is the meaning of this term Finance? Finance literally means the money available to a person, business or country and how that money is managed. Finance could also be defined as the act of generating funds for an expense.
It is basically investing, borrowing, budgeting, lending, and forecasting, and there are two major classifications of finance, namely public and private finance. In this article, we will look at the meaning of these two classes of finance and the differences between them.
Recommended: Pros and Cons of Being a Teacher
Definition of private financing
Private finance is the economic study and financial management of the income, expenditure, borrowing, investment and savings of an individual or a private company. Private finance is designed to generate profits and there are two main types of private finance, namely: personal finance and business finance.
Personal finance refers to an individual’s financial activities such as budgeting, spending, investing, mortgages, consumer loans, banking, and insurance. Personal finance is financial planning at the lowest individual level, it involves the achievement of personal financial goals and generally refers to the financial management of an individual or family.
Business Finance literally means the process of acquiring and maintaining funds for your business. It can also be the funds made available to business owners to meet the needs of their business. The main objective of a finance company is to maximize profits and great funds for the owners and shareholders of the company. Notably, there are different types of business financing such as: Debt Financing, Asset Lending, Equity Financing, Capital Raising, Angel Investors, Personal Placement, Loans and Commercial Mortgages .
See also: Economic analysis tools explained
Definition of public finance
Public finance is the branch of finance and economics that deals with the financial management of a country’s resources, a country’s income, expenditures and finances of government institutions. Public finance is therefore essentially the role of government in managing public funds and effectively controlling the economy of a country.
Public finance involves: taxes (which are the government’s main source of revenue), public expenditure (which refers to what the government spends for its money. This can include purchases of goods and services by government for current use, purchases of goods and services by government with the intention of creating future benefits from government expenditures involving the transfer of money), budget (this refers to the estimated income and expenditure of the government within a year), national debt (this happens when the government’s expenditure is much greater than its income, then financial mechanisms like loans, borrowing money, issuing bonds and others come into play ).
Public finance involves all of these and more deeply the study of the management of public funds in a country’s economy in order to contribute to the growth and development of that country.
Now that you understand the meaning of private and public finance, hopefully the differences between them are pretty self-explanatory, but it doesn’t end there as there is a wide range of differences between the two. Let us therefore consider all the differences that exist between Private Finance and Public Finance.
Recommended: Best Websites to Learn C++ Programming Online: Top 10
Differences between private and public finance
1. Private finance is the economic study of the financial activities of an individual, family, or business, while public finance is the economic study of the financial activities of the government.
2. The ultimate goal of private finance is to maximize profit, while the ultimate goal of public finance is to maximize social welfare.
3. Private finances are generally secret as they are generally not open except under certain conditions, unlike public finances which are generally open. For example: The government budget which is a public document open to all citizens of a country.
See also: Advantages and disadvantages of being an entrepreneur
4. Private finances can be affected by bankruptcy because an individual can be declared bankrupt, but in public finance there is no problem of bankruptcy because whether or not there is a huge financial crisis, the government can never be declared bankrupt.
5. In private finance, the nature of a budget differs greatly from what is possible in public finance. For example, in public finance, a government budget is always for one year, but in private finance, an individual’s duration can vary because there is no static calendar.
Further, in public finance, the budget if the government has just been approved and adopted by the legislative body, while in private finance, the budget of an individual or a company is generally not subject to strict review and is not required to be approved by a supervisory authority.
Recommended: Characteristics of a Good Leader
6. Public finance enjoys more elasticity than private finance because in public finance, the means of income and expenditure of the government are abundant, unlike in private finance where an individual’s means of income are limited.
seven. As illustrated earlier in this article, public finance is characterized by the payment of tax which is a major source of revenue for the government and an individual’s failure to pay tax often results in a fine or other penalties. However, in Private Finance, this is not the case as there is no tax payment compulsion or penalty for not paying your tax.
8. In private finance, any individual adjusts his expenses and expenses according to his income whereas in public finance, the government adjusts his income according to the size of the expenses. In other words, the government makes an estimate of its expenditures before looking at how to increase the required amount of its expenditures.
Recommended: pros and cons of delegated legislation
9. In Private Finance, the expenses of an individual or a company are determined by their income, style, habits, tastes, purpose or fashion. Whereas in public finance, the expenditures of a government are determined by the economic, political and social policies and objectives of the state.
ten. Notably, in a private finance, the nature of an individual budget is usually in surplus, whereas in public finance, the nature of a government budget is usually in deficit, as government expenditure and total expenditure usually exceed estimated government revenue .
11. In public finance, government spending can be influenced by political and other non-economic factors, but this is not the case in private finance.
See also: How to politely correct someone who is wrong
12. Private finance is characterized by an individual concerned with his current profit, wealth, well-being and health, but public finance is concerned with the economic and financial management of a country’s resources for the benefit of the present and future generations.
13. In public finance, the government can navigate emergencies by printing currency to meet its needs during such an emergency, but in private finance, this can never be the case, because individuals or companies do not may never be expedient to print currency. a country because it is illegal. Thus, the only option open to an individual during the emergency period is the loan.
14. In Private Finance, collecting a loan is not always easy. You can only borrow from a friend’s financial institution and you can never borrow from yourself, whereas in public finance the government can borrow from itself.
ALSO READ: Exceptions to the Nemo rule dat quod non habet
15. Finally, in public finance, the government has many resources to generate money, such as taking advantage of the country’s natural resources, printing foreign currency, borrowing from itself, imposing taxes on every citizen, adopting laws that will be beneficial for this purpose, among others. . However, this is not feasible in Private Finance because an individual has limited resources to generate income.
These are the basic differences between public and private finance. Do you think this article was helpful to you? If so, please share your opinion in the comments section below.
Edeh Samuel Chukwuemeka ACMC, is a law student and certified mediator/conciliator in Nigeria. He is also a developer with knowledge in HTML, CSS, JS, PHP and React Native. Samuel is determined to change the legal profession by creating web and mobile applications that will make legal research much easier.