Economics and finance are two separate disciplines that are closely intertwined and can both influence each other. This article will help with understanding the difference and also assist those looking at choosing between pursuing a degree in economics or finance.
Economics itself is a social science that studies the production, consumption, and distribution of goods and services. Economic theories look at how the supply of production and the demand for consumption impact pricing and also how changes in things like regulation or tax rates will impact the economy at a national level.
While many economic concepts are very abstract in that they imply what will occur if a certain variable (i.e. the tax rate) changes assuming all other variables stay the same, they can have a practical use for investors. Investors need to predict and analyze certain trends in the economy to identify potential opportunities, and economic theories can assist with doing that. If, for example, an oversupply of a product is apparent (say coffee due to ideal weather conditions) an investor can react and plan for the fact that coffee as a commodity will have a relatively low price.
Economics as a career will often see two main routes, academia and the analysis of economic data in government or corporate roles. As an academic, economists seek to develop new theories and models for how individuals interact or how certain factors can be expected to impact the economy as a whole. In business and government, economists work towards forecasting things like growth, interest rates, and inflation and leveraging those forecasts into effective business moves or government policy.
In many ways, finance is a sub-field of economics, and many financial principles are rooted in economic theory and were created by economic theorists. Finance focuses far more on the study of financial markets (i.e. stock and bond markets) with concepts like interest rates and the timing of cash flows being very important.
While economic concepts can be very abstract many financial concepts try to apply precision in terms of the exact pricing and value of certain assets (say stocks or commodities). Quantifying risk and looking at the time value of money are two key areas where finance theories greatly assist not only pricing of assets but also assist with assessing the value of business proposals or capital investment plans.
Finance as a career is far more likely to lead to corporate sector jobs as the analysts, fund managers, and executives that work in most companies come from a finance background. Finance is often seen as the best route to senior management at a company as a firm understanding of financial concepts is required for any company to succeed.
From an academic sense, finance is an offshoot of economics and encompasses many of the theories that have their base in economics. As such, they are very complementary to one another in terms of their scope of study and the outcomes of work. From a career perspective, a finance degree is far more likely to support a rise up the corporate ladder, with economics more likely to lead to a career in academia or government (though there are still corporate roles for economists).