Finance vs Economics

Finance-vs-Economics

Difference Between Finance and Economics

Finance and economics are two different concepts that are somewhat interrelated with one another and economics is basically concerned with the consumption, exchange of products and services, production, transfer of wealth, etc whereas finance is concerned with the full utilizationhttps://www.db.com/

In simple terms, economics and finance are just two sides of one coin. If you want to succeed in finance, you need to know economics well. Economics is more about finding the equilibrium point of demand & supply, understanding average cost and marginal costAverage Cost And Marginal CostThe average cost is the per-unit production cost of the goods produced during a period. In contrast, marginal cost is the value of increase or decrease of total production cost during a specific period if there is a change in output by one extra unit.read more, finding differences between fixed cost & variable cost and many such theoretical concepts; finance, on the other hand, is the right extension of these concepts. Thus, it’s often been seen that people who have made their mark in finance have often had an economics background.

More succinctly, economics creates the foundation on which finance builds the house. So, if you want to finance professionals, you need to know economics well to understand the complexity and vastness of finance.

In this article, we will look at each of these disciplines separately and then try to compare two so that you can make an informed decision in regards to your career.

If you’re ready, let’s get started right away.

Comparative Table

ComparisonFinanceEconomists
BranchesCorporate Finance, Quantitative Analysis, Accounting, Management Accounts, Risk Management, Financial Analysis, Fixed IncomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments.read more, DerivativesMacroeconomicsMacroeconomicsMacroeconomics aims at studying aspects and phenomena important to the national economy and world economy at large like GDP, inflation, fiscal policies, monetary policies, unemployment rates.read more
Microeconomics
Career OptionsInvestment BankingInvestment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc.read more,
Corporate Finance,
Equity ResearchEquity ResearchEquity Research refers to the study of a business, i.e., analyzing a company's financials, performing Ratio Analysis, Financial forecasting in Excel (Financial Modeling), & exploring scenarios to make insightful BUY/HOLD/SELL stock investment recommendations. Moreover, the Equity Research Analysts discuss their findings & details in the Equity Research Reports. read more,
Private Equity,
Risk Management,
Quantitative Analysis,
Project FinanceProject FinanceProject Finance is long-term debt finance offered for large infrastructure projects depending upon their projected cash flows. Moreover, an investor has to form a Special Purpose Vehicle (SPV) to acquire the same. read more” description=”Project Finance is long-term debt finance offered for large infrastructure projects depending upon their projected cash flows. Moreover, an investor has to form a Special Purpose Vehicle (SPV) to acquire the same. ” url=”https://www.wallstreetmojo.com/project-finance/”]Project FinanceProject FinanceProject Finance is long-term debt finance offered for large infrastructure projects depending upon their projected cash flows. Moreover, an investor has to form a Special Purpose Vehicle (SPV) to acquire the same. read more[/wsm-tooltip],
Technical analysis
Statisticians
Strategists
Risk management Analyst
Operations Research Analyst
insurance underwriters
Budget Analyst
EducationBachelor in finance, accountancy, economics or mathematics; MBA,
CFA, FRM, PRM, CFP, CIMA, CMA, ACCA, CPA and more
Bachelor’s degree,
master degree in economics
PhD
Top FirmsBlackstone,
Goldman Sachs & Co
Morgan Stanley
Bank of America Merrill Lynch
Credit Suisse
Citibank
Deutsche Bank
HSBC
UBS
J.P.Morgan Chase & Co
Most top firms that hire economics graduates include the list of Top finance and Business Firms.
Additionally, economists are hired by Marketing, HR, Retail, E-commerce companies
Work-Life BalanceIt depends on which subdomain you are working for. Investment Banking – it’s brutal! Equity Research is still OK. Buy-Side Analyst has a balanced work life.
Depending on the area, you may have to work for 10-18 hours a day
Balanced – Much better than the Financial Analysts. Work is not urgent all the time of the year.
TravelMostly they are not required to travel much. You can safely assume that 90% of the time is spent in Office.Not much of travel is required by economists
Key WordsFinancial Modeling basics,Financial Modeling Basics,Financial modeling refers to the use of excel-based models to reflect a company's projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact.read more Valuations, M&A, NPV, IRRMacroeconomicsMacroeconomicsMacroeconomics aims at studying aspects and phenomena important to the national economy and world economy at large like GDP, inflation, fiscal policies, monetary policies, unemployment rates.read more, MicroeconomicsMicroeconomicsMicroeconomics is a study in economics that involves everyday life, including what we see and experience. It studies individual behavioural patterns, households and corporates and their policies. It deals with supply and demand behaviours in different markets, consumer behaviour, spending patterns, wage-price behaviour, corporate policies.read more, GDP, Inflation, Fiscal PolicyFiscal PolicyFiscal policy is a government policy that is used to control a country's finances and revenue, and it includes various taxes on goods, services, and individuals, i.e., revenue collection. It has an impact on spending levels, so it is referred to as monetary policy's sister policy.read more, Exchange Rate, currency, Crude, Commodities, Aggregate Demand and Supply, Real vs Nominal, Elasticity, Savings Investing
Exit OpportunitiesDepending on the chosen area of interest, there are some amazing exit opportunities within the Finance sector.
For example, Investment Bankers moving into Private Equity, or a Research Sell-side analyst moving into a Buy-Side Analyst profile
Economic Consultant, Financial Analyst, Statistician, Actuarial
Networking OpportunitiesMostly work within the Financial Industry. The alumni network is strong but not varied as found in the Consulting.Not much. Limited within the domain alumni network
OutlookJob opportunities across finance domains like you choose, you need to learn financial statement analysis, financial modeling and valuation, project finance, quantitative finance, risk management, portfolio management, investments analysis and many moreHuge demands of economists in the consulting firms, private banks as well as public sectors.

Key Differences Between Finance and Economics

Economics and finance are two different disciplines on the basis of their scope of work. Of course, they are inter-related and no matter what you choose, you would occasionally need to refer back to some parts of both of these subjects once in a while. But they’re different. Let’s understand how different they are –

In simple terms, economics is a social science that helps in the management of goods and services subject to the production, consumption and other factors directly or indirectly affecting them. Basically, there are two types of the economics you need to know microeconomics and macroeconomics – microeconomics talks about a single unit or business and macroeconomics deals with industry as a whole. There are huge demands of economists in the consulting firms, private banks as well as public sectors.

On the other hand, finance is also a science of managing funds subject to three main factors – time, the risk involved in the transaction and liquidity. There are many branches of finance and as you go deep in this subject, you will realize that there are more things to learn.

For example, you would start with corporate finance to have your fundamentals strong. Then depending on whichever field you choose, you need to learn financial analysis, financial modeling and valuation, project finance, quantitative finance, risk management, portfolio management, investment analysis and many more. Many people confuse finance with accounting. But finance is much vast than accounting. To learn the fundamentals of finance, you need to have a basic understanding of accounting, but the scope of finance is much more than accounting. If you’re good at maths and logical reasoning, you would be able to make your mark in the financial field.

Now new ideas are born out of two separate but different ideas. So if you want to do well in any one of them, it’s better that you learn the basics of the other. For example, if you decide to go for a financial domain, the basic knowledge in economics will help you understand complex issues and you will be able to connect two separate ideas and form concepts while studying. On the other hand, if you decide to go to economics, it will definitely help if you know the fundamentals of finance.  Even as an economics student, you will get to know the practical aspect of how firms work in the real world.

Educational Requirements

The world of education is vast. But still, there is a basic structure you can follow if you want to enter the world of economics or finance.

#1 – For Economist

Being an economist is a great profession. Of course, there are some things you may dread like repetitive research, depending more on theoretical dimensions than taking a practical approach; however, once you become an economist, your growth would be dynamic and if you wish to learn and be a better economist (top of the curve), you would get all the opportunities to be so.

But what you need to do to become an economist?

Now there are two things.

  • First, you need to decide what you want to become – a top-notch economist or a professional who looks at his profession to earn his living. Let’s say you want to become a top-notch professional. So you need to earn your bachelor’s degree in economics where you will study business, management, and economics.
  • But to be top-notch or better to say top 10% of economists in the world, you need to the power of knowledge. So you need to go for a master’s degree as well which you will be able to complete within two years.
  • And then finally, it’s better if you earn a Ph.D. as well. Once you’re a Ph.D., your opinions and judgments would be valued much more than a mere bachelor degree holder or master degree holder.

So here’s a chart you should look at as career requirements of an economist –

Career requirements

source: study.com

#2 – For Finance Professional

Finance professionals are much diverse than economists profile. Even many economics graduates often go for the finance domain because they feel that they want to explore more practical aspects of the business than devising theoretical models.

So if you want to go into the finance domain, what would be your educational requirements? Let’s have a look at the diverse opportunities.

The basic thing about finance is that first, you have your bachelor’s degree. It’s always better if you complete your bachelor in finance, accountancy, economics or mathematics. These subjects can be the foundation for your future course of action. There are many options. From the myriad of opportunities, you need to decide in which direction you would like to go.

  • Investment professional: If you want to go for the investment professionals, the best thing to do is to go for the CFA course. CFA exam will not only equip you for becoming an investment professional, but it will also help you become an expert in investment analysis, market analysis and how to pick the right investment opportunities for your clients.
  • Management professional: You can also choose to become a management professional by doing MBA in finance from a reputed college or university. If you can pursue your MBA degree from a top-notch university, you would be able to get into the investment banking profession or corporate finance of any large corporation. After doing an MBA, you would become more of a business professional than a core-finance professional.
  • Risk management professional: You can also choose to go for the FRM exam, CRM exam, ERM exam and many other risk management courses like actuaries so that you can become a risk management professional within few years of constant learning and practice.
  • Accountant: You can also decide to go for CA, CPA or any other accounting courses to become a public accountant or else you can join in a private bank as well.

As a finance professional, the opportunities are endless. The above are the most sought after and these are the courses student choose the most. You can also go for other courses like CS (Company Secretary-ship), Cost Accountancy, Management Accountancy, etc.

Primary Tasks or Roles

Let’s talk about the main responsibilities of an economist and finance professional.

#1 – Primary Tasks of an Economist

Even if it seems that an economist is mostly dealing with theoretical jargon, however, she also needs to analyze and interpret a huge sample of data.

#2 – Primary Duties of Finance Professional

Now, the finance profession is very diverse and as students can choose different professions and each profession would have different key tasks, it’s difficult to pinpoint only a few primary tasks for all of them. So, we will give a brief overview of the primary tasks of financial management professionals. The primary tasks may be different in case you choose to go to other financial domains.

Let’s talk about the primary tasks of financial management professionals –

Work-Life Balance

Usually, economists have a great work-life balance as their work acts as a support to management decisions. That doesn’t mean that the work of economists is not important. However, it doesn’t need to be urgent all the time, throughout the year.

In the case of finance professionals, the work-life balance varies from profession to profession. For example, if you are an investment banking professional, your work-life balance will be none. You won’t get weekends to rest and to spend time with your families; even some days you need to spend overnight at the office to meet the requirements of clients. On the other hand, if you’re an equity research analystEquity Research AnalystAn equity research analyst is a qualified professional who interprets financial information and trends of an organization or industry to provide recommendations, opinions, reports, and projections on the corporate stocks to facilitate equity trading.read more, you will achieve a good work-life balance. And you will also get ample opportunities to spend your weekends with your inner circle and work pressure is usually much lesser than investment banking professionals. So the work-life balance depends on which financial domain you pick as your profession. See – Investment Banking Job

Compensation

According to the salary.com, an economist earns around the US $121,357 per annum as an average salary. So you can understand that the pay is amazing. Let’s have a glance at the chart below to get an overall idea about the compensation of the economist.

finance vs economics salary

source: Salary.com

From the above chart, it’s clear that if you can reach the top 10% of the curve as an economist, you will earn around the US $173,686 per annum.

Let’s look at the compensation of financial management professionals.

Finance manager salary

source: payscale.com

From the above chart, it’s clear that finance management professional earns around the US $84,800 per annum on an average. As it’s just revolving around one dimension of compensation, we will try to look at different aspects of it and that is experience wise compensation.

Let’s have a look.

Experience Wise Salary

source: payscale.com

Finance vs Economics Video

 

Conclusion

Finance and Economics can be very different in terms of career, skills, exit opportunities, etc. A typical economics graduate needs to complete a master’s and a Ph.D. to get an excellent career opportunity. However, finance graduates can complement their graduation by taking certification courses like CFA, FRM, PRM to boost their chances of climbing up the Finance career. There are somehow focused options in economics, however, in finance, there is a broad variety of choices to choose from.

So Opt the one that interests you the most!

Good Luck!

Recommended Articles

This has been a guide to Finance vs Economics. Here we discuss how finance and economics are interrelated and educational requirements to become a professional. You may also have a look at the following articles –

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Comments

  1. Sarah GNON says

    You article was really helpful! In general I never comment articles I read but I have to make an exception for yours.
    Thank you very much, things are much more clear in my head and you can’t imagine how you help me.
    Thank you again.

    • Dheeraj Vaidya says

      Thanks for your kind words!

  2. Paul says

    Great job, Dheeraj!
    I have been helped by this post.

    • Dheeraj Vaidya says

      Thanks for your kind words!

  3. Valmik N. Jaware says

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    • Dheeraj Vaidya says

      Thanks Valmik, glad you liked the article.

  4. Deborah gager says

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  5. Dack Miler says

    You are absolutely right Mr. Dheeraj. Actually we must know about economics if we need to succeed in Finance but in the same we also need to know some basic accounting also. Do you have any article on Finance and Accounting?

    • Dheeraj Vaidya says

      Thanks and welcome. And yes I agree with you Basic Accounting is as important as Economics. You need to know both of these to succeed in finance. And I do have an article in which I have described the differences between Finance and Accounting. Do let me know in case of any question.