Although they are often taught and presented as very separate disciplines, economics and finance are interrelated and inform and influence each other.

(For background reading, see Is finance an art or a science? )

Without falling back on dry academic definitions, economics is a social science that studies the production, consumption and distribution of goods and services, with an aim of explaining how economies work and how their agents interact. Although labeled a social science and often treated as one of the liberal arts, modern economics is in fact often very quantitative and heavily math-oriented in practice.

When economists succeed in their aims to understand how consumers and producers react to changing conditions, economics can provide powerful guidance and influence to policy-making at the national level.

For those who choose to pursue economics as a career, academia is an obvious option. Academics not only spend their time attempting to teach students the principles of economics, but also researching within the field and formulating new theories and explanations of how markets work and how their agents interact.

There is also call for economists in the corporate world. Here the concerns of economists are more immediate and near-term. Economists working for major investment banks, consultancies, and other corporations often focus on forecasting growth (GDP, for instance), interest rates. inflation, and so on. These projections may represent a product in their own right (that can be marketed to clients) or an input for managers and other decision-makers within the company.

Finance in many respects is an offshoot or outgrowth of economics, and many of the notable achievements in finance (at least within academia) were made by individuals with economics backgrounds and/or positions as professors of economics.

Finance generally focuses on the study of prices, interest rates, money flows and the financial markets. Thinking more broadly, finance seems to be most concerned with notions like the time value of money. rates of return, cost of capital, optimal financial structures and the quantification of risk.

How is finance useful?

While economics offers the pithy explanation that the fair price of an item is the intersection of supply, demand, marginal cost and marginal utility. that is not always very useful in actual practice. People want a number, and many billions of dollars are at stake in the proper pricing of loans, deposits, annuities, insurance policies and so forth. That is where finance comes into play in establishing the theoretical understandings and actual models that allow for the pricing of risk and valuation of future cash flows

Finance also informs business managers and investors on how to evaluate business proposals and most efficiently allocate capital.

Basically, economics posits that capital should always be invested in a way that will produce the best risk-adjusted return; finance actually figures that process out.

Finance as a career