Financial, Economic, Monetary, Fiscal
I've been using these terms kind of interchangeably, and honestly, for everyday conversation that's fine. But they do have specific meanings, and understanding them can help you make sense of the news.
I started writing a Pocket Money post but I realised that these are probably almost too intertwined and too fundamental, it also brought in lots of other variations on terms. I had to dig out my financial advising text books to make sure I was getting this right for you.
So let's dig in.
Financial:
Relates to a specific money situation - could be an individual, a company or maybe even a country. But it's relating to the closed system of how money is organised - how it's raised, managed, invested and spent.
Finances:
The money situation of a person or company - the actual practical administration.
Economic:
Is about the broader system of production, distribution, consumption and trade or money, goods and services in a society. How societies make the markets work.
Economics:
Is the study of that system.
Monetary:
Relates to the money supply, currency and interest rates in a country which is typically managed by central banks - in the UK, that's the Bank of England, which operates independently from the government. It's really a subset of economics but which is focused just on the money itself.
Fiscal:
Relates to government revenues specifically and especially taxes. And is one of my favourite words.
The Policies
One thing that trips me up is the difference between economic, fiscal and monetary policy. When you're listening to the news, the policies could be totally different (i.e. the Bank of England has put the rates up (monetary) vs we're keeping the triple pension lock (fiscal)) but it's clear that they will relate to each other somehow and it’s all about money, so it just sort of swills around in my head.
Economic Policy
Is a really broad term, it's everything the government can do to affect the economy of the country. It encompasses fiscal and monetary policy but doesn't stop there - it could include childcare, education, health and social care, the labour market and transport.
Fiscal Policy
Really specifically relates to how the government attempts to influence economic activity through government spending, taxation and borrowing. This is what the Chancellor of the Exchequer is outlining in the Budget statement. It could include changes to VAT, tariffs on imports or reducing public spending.
Monetary Policy
Is what the central bank (the Bank of England) can do to affect the supply and price of money - it mostly relates to the interest rate policy nowadays - there'll be an announcement from the Bank of England on interest rates on the 5th of February.
For us, as humans every day, it's probably not that important to keep the differences in mind but I'm glad somebody does! Keeping monetary policy, and the central bank, separate from government intervention is a key aspect of making sure those who hold power are accountable. Having one person in charge of all aspects is... not a situation we want to be in.
Hopefully that’s a bit of clarity for you. I’m glad I went back over it, although for me it’s one of those strangely compelling areas that makes me want to read more and more, and maybe go to a coffee house in Georgian London to hear some rich men in wigs have an argument.
Love Eleanor. xxx
