What Does Flow Of Funds Mean?

Flow of funds accounts are used to track the flow of money to and from various sectors of a national economy. 

Flow of funds (FOF) accounts are collected and analyzed by a country's central bank. In the United States, they are called Financial Accounts and are released by the Federal Reserve Bank approximately 10 weeks after the end of each quarter. 

The release, which the Fed labels Z.1, shows the assets and liabilities of each sector of the economy at the end of the period in question. It also shows how each sector has served as a source and use of funds. It includes a times series of outstanding debt for each sector of the economy, the derivation of net wealth in the country by asset, and the distribution of gross domestic product (GDP). Detailed statements for each account show how net capital has shifted to or from various sectors, allowing for a granular look at the movement of funds within the economy, as well as into and out of it.

Uses for FOF Accounts

The FOF accounts are used primarily as an economy-wide performance indicator. The data from the FOF accounts can be compared to prior data to analyze the financial strength of the economy at a certain time and to see where the economy may go in the future. The accounts can also be used by governments to formulate monetary and fiscal policy.

The accounts use double-entry bookkeeping to track the changes in assets and liabilities in all sectors of the economy: households, nonprofit organizations, corporations, farms, the government (federal, state and local) and the foreign sector. A wide range of financial instruments is accounted for: Treasury assets, American deposits abroad, savings deposits, money market funds, pension funds, corporate equities and bonds, mutual fund shares, mortgages, and consumer credits are just a few examples.

The Fed's annual flow of funds data extends back to 1945, with quarterly data available from the beginning of 1952. The data provide a nuanced picture of how the size and composition of the U.S. economy have changed since World War II.