Finance vs Economics

Finance and economics are two different concepts that are somewhat interrelated. Economics is concerned with the consumption, exchange of products and services, production, transfer of wealth, etc., whereas finance is concerned with the full utilization.

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 and supply, average cost and marginal cost,

understanding the differences between fixed and variable costs, and many such theoretical concepts. and many such theoretical concepts. On the other hand, finance is the right extension of these concepts. Thus, it has often been seen that people who have made their mark in finance have had an economics background.

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

This article will look at each discipline separately and compare the two to make an informed decision about your career.

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

Economics and finance are two different disciplines based on their scope of work. Of course, they are interrelated, 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 are different. Let us understand how different they are: -

Economics and finance are two different disciplines based on their scope of work. Of course, they are interrelated, 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 are different. Let us understand how different they are: -

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. As you go deep into this subject, you will realize 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

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 more vast than accounting. To learn the fundamentals of finance, you need to understand accounting, but the scope of finance is much more than accounting. If you are good at maths and logical reasoning, you would make your mark in the financial field.

Now new ideas are born out of two separate but different concepts. So, if you want to do well in any one of them, it is better that you learn the basics of the other. For example, if you decide to go into a financial domain, the basic knowledge of economics will help you understand complex issues. You will connect two different ideas and form concepts while studying. On the other hand, if you decide to go into economics, it will help you know finance fundamentals. Even as an economics student, you will 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.

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. But, 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 will be dynamic. Therefore, if you wish to learn and be a better economist (top of the curve), you will get all the opportunities.

But what do 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 top 10% of economists globally, you need the power of knowledge. So, it would help if you went for a master's degree, which you will complete within two years.
• And then finally, it is better to earn a Ph.D. as well. Once you are a Ph.D., one would value your opinions and judgments much more than a mere bachelor's degree holder or master's degree holder.

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

source: study.com

#2 - For Finance Professional

Finance professionals are much more diverse than economists. Many economics graduates often go for the finance domain because 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's 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 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 opting for 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 to become a risk management professional within a few years of constant learning and practice.
• Accountant: You can also decide to become a public accountant for CA, CPA, or any other accounting courses. Else, you can join a private bank as well.

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

#1 - Primary Tasks of an Economist

Even if an economist mostly deals with theoretical jargon, she also needs to analyze and interpret a huge sample of data.

• An economist's main work revolved around advising the various stakeholders regarding economics.
• They also need to gather the data, comprehend multiple sampling techniques to conduct surveys, and create different econometric methods to forecast trends.
• Once the forecasting is done, she needs to analyze and interpret the trends and conclude how a firm's strategy needs to be changed (if at all).
• Her duties also include writing various technical and non-technical reports to send across to top management to take proper actions toward changing product policies, the sustainability of the business, and many other factors.
• An economist also needs to give various presentations on her research, analyses, and interpretations to top management executives to make informed decisions.

#2 - Primary Duties of Finance Professional

Now, the finance profession is very diverse. As students can choose different careers and each job would have various key tasks, it is not easy to pinpoint only a few primary functions for all of them. So, we will give a brief overview of the primary functions of financial management professionals. Of course, the primary tasks may differ if you go to other economic domains.

Let’s talk about the primary parts of financial management professionals:

• The main responsibility is to source funds from the market. It may be in the form of a direct loan from financial institutions or conducting IPO if it’s the first time or selling more shares to the existing and new shareholders.
• Once the funds are arranged, it is time to invest the money in the business. That is also a huge concern for financial management professionals. They need to know exactly where to invest in getting maximum ROI from the investment.
• If the business makes a profit, distributing the profit (if at all) or plowing back for  reinvestment in the business should be one of the most important duties.
• Finally, the finance management professional needs to write reports or present his findings to the top management to get approval to go ahead and carry on with his primary responsibilities.

Usually, economists have a great work-life balance as they support management decisions. Of course, that does not mean that the work of economists is not important. However, it does not need to be urgent 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 may get weekends to rest and spend time with your families; some days, you need to stay overnight at the office to meet clients' requirements. On the other hand, if you are an  equity research analyst, you will achieve a good work-life balance. You may 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

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

source: Salary.com

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

Next, let us look at the compensation of financial management professionals.

source: payscale.com

The above chart shows that finance management professionals earn around $84,800 per annum on average. As it revolves around one dimension of compensation, we will try to look at different aspects of it, which is experience-wise compensation.

Let us have a look.

source: payscale.com

Finance and economics can differ in 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 CFA, FRM, PRM to boost their chances of climbing up the finance career. There are some focused options in economics. However, there is a wide variety of choices in finance to choose from.

So, opt for the one that interests you the most!

Good Luck!

Guide to Finance vs. Economics. We discussed the difference between finance and economics, and the educational requirements. You may also have a look at the following articles: -

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