Difference between Finance and Economics

Key Difference: Finance is the study or management of money affair. On the other hand, economics is the study of production and distribution of money and goods.

There is a significance difference between Finance and Economics. To understand the basis of both the terms, let’s understand and learn their basic fundamentals.

Dictionary.com defines ‘Finance’ as:

  • The management of revenues; the conduct or transaction of money matters generally, especially those affecting the public, as in the fields of banking and investment.
  • Finances, the monetary resources, as of a government, company, organization, or individual; revenue.
  • To supply with money or capital; obtain money or credit for.
  • To raise money or capital needed for financial operations.

Finance is a science of fund management, which focuses on the managements of assets and money. It studies the financial markets and brings together the borrowers and the lenders to allow them to trade. Finance also generally focuses on the study of prices, interest rates and money flows. The three broad areas of financial study are:

  • Business finance
  • Public finance
  • Personal finance

Finance is an outgrowth of economics and it informs investors and business managers on how to evaluate business proposals and most efficiently distribute capital. Basically, finance is that capital that should be invested in a way that will produce the best risk-adjusted return. It actually figures that process out. Finance is a word mostly heard by individuals in families or by banks or other institutions, and is mainly managed by them.

Dictionary.com defines ‘Economics’ as:

  • The science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind.
  • Financial considerations; economically significant aspects: What are the economics of such a project?

Economics is a social science. It studies the production, consumption, and distribution of services and goods. Economics influences policy-making at the national level and can provide a powerful guidance. Those who all have read about economics, have studied just basic information, but in the actual sense it’s a vast topic. Economics is a discipline that studies deals or trade across all alike or unlike markets.

There are very real consequences to how a nation approaches taxation, government spending, etc. Economics or rather economists can offer, advice and analyze regarding these decisions. It is managed by experts or professional economists who have studied about it. They are hired as consultants by private and public sectors. The branches of economics are:

  • Macroeconomics
  • Microeconomics

Basically, finance and economics are interrelated but there unique features that mainly differentiate one from another. Finance is more on numbers and focuses on time value of money, whereas, economics is a more theoretical subject and focuses on money value of time.

Image Courtesy: webcache.googleusercontent.com, motherjones.com

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