Access to capital is important for all firms, but it is particularly vital for startups and young firms, which often lack a sufficient stream of earnings to increase employment and internally finance capital spending. Indeed, research shows that more highly developed financial systems disproportionately benefit entrepreneurship. 1 The financial sector also helps households save for retirement, purchase homes and cars, and weather unexpected developments.
Many financial innovations, such as the increased availability of low-cost mutual funds, have improved opportunities for households to participate in asset markets and diversify their holdings. 2 Expanded credit access has helped households maintain living standards when suffering job loss, illness, or other unexpected contingencies.