Published on : 17 June 20203 min reading time
Currently the economic and financial crisis is making the headlines. And we can see that these two situations seem to be endless. In order to distinguish economy and finance, two similar or confusing concepts, it is essential to explain their difference. For more information on this subject, read this article.
Economics and finance: what you need to know.
First of all, the concepts on the economic situation, talk about the assets of a natural person or a company. In other words, the total amount of property and assets owned or possessed by him or her. Then, when we talk about the financial situation, we refer to the ability of individuals or companies to deal with financial problems such as debt payments or the cash available to them to pay their debts. Be aware that an individual with a bad financial situation cannot necessarily have a bad economic situation, even if they do not have the cash available to pay their debts. If the amount of debts exceeds the value of the assets one has, one can have a good financial situation; however, this situation is economically bad.
The main differences between economics and finance
As mentioned above, finance is the indispensable resources to implement an economic project. It relates to a company, an individual and states. There are three types of finance; firstly, private finance, public finance and corporate finance. The economy as a whole brings together the activities of men, production, without forgetting the consumption and distribution of wealth. In some cases, it is subject to the reduction of a cost or savings as a result of reduced expenditure. Nowadays, the debate on economic issues is based in particular on the difference between the real economy and the financial sphere. The latter causes the evils of the former, the most recent ones being those of the crisis of 2008.
In the field of the economy, there is an opposition between a real sphere, i.e. production, industry and a financial sphere such as the activity of bankers and speculators. You should be aware that the development of the financial sphere is at the expense of the real economy. There is no separation between these two concepts. The financial sphere offers real services that the person who builds a house, who needs intermediaries to obtain savings that are indispensable for an investment.