In a recent coaching call, I tried to share the differences between doing Economics and Finance. It was not easy; somehow pre-University students feel rather muddled between finance and economics which came as no surprise to me. The thing is, both deals with business; but economics is a much broader topic of which finance is actually a subset. What we call ‘finance’ as a topic is actually ‘financial economics’. A word of warning – I actually love economics so maybe I’d sound a little biased here but I try to be balanced.
Economics deals very broadly with questions pertaining to the functioning of the economy both at the broad level (macroeconomics) and the industry or firm level (microeconomics). It has since applied those concepts and thinking into various other areas such as decision-making (basically cost-benefit analysis), behavioural sciences (extrinsic and intrinsic incentives, cerebral resource allocation, psychological biases and mistakes – okay I made up the second one up but you do get the drift). The focal point of economics, is not money; it is the ends behind money – the goods, services, psychological satisfaction, or ‘utility’ in Jeremy Bentham’s formulation.
Finance deals with money, in all its forms – cash, credit and many of the newer, colorful ways in which promises to pay are structured and secured as well as the flow/movement of it. It is generally focused on movement across legal/geographical boundaries (exchange rates), movement across time (interest rates), how to price those rates, how to value cashflows. From an economist point of view, finance is a means, to achieve the ends which is utility. But in finance, there’s no notion of utility, everything is simply measured in terms of money, which ever currency you define as the base and within the period/time-horizon of consideration.
Now the reason for asking the difference, was really to consider what kind of career options these degree programmes open up. The truth is, finance sector takes in graduates from economics as well, and even engineering (some banks actually prefer taking engineers); but of course, the finance graduates certainly have it better in banks and might be more comfortable with the jargons and methodologies required when they first start out. They might also be more motivated by the kinds of programmes that the jobs serve up to them because the degree programmes tend to also build those areas of skills that are useful in banking (yes I’m talking about tidying up your excel models, dressing slickly, speaking well and networking).
Economics is broader, in that it gives you the flexibility to apply the set of thinking tools that you learnt in many other areas in terms of jobs – public policy roles, strategy consulting, business consulting, business development and more. But the thing is that economics is so general all these other jobs can also be filled by students from various other (albeit slightly different) disciplines. So in a sense, there’s nothing really ‘unique’ about economics graduates. If one desires to devote one’s university life towards building one’s career post-university, then the best bets are to go for professional sort of degrees: accounting, law, medicine, engineering, actuarial science, architecture, urban planning. In all of them, follow through and obtain your professional qualifications, then practice. These will be your fall-back regardless of what work you eventually branch out into. I’ve friends who were lawyers or accountants becoming entrepreneurs but at least if things fail, they are able to go back to their professions and do reasonably well.
But honestly, what good is it to devote your degree and life in university to doing something you’re planning to do for the rest of your working life anyways? To me, it’s important to draw upon that time as one that challenges your mind in the manner you deem appropriate, so as to discover how you can use it to contribute to the world. Pick subjects asking the kind of questions you feel excited about and that you want to answer them but don’t know the answers to (yet). Pick subjects that allows you to fail in a way that you have courage to, and feel proud of, and can share your wild experiences with your grandchildren. Be practical, but use the time wisely and well – don’t allow yourself to be enslaved to the expectations of the society or the world.
All the best!