Why Does Finance Rule at the College of Business?

The College of Business works a little differently than a lot of colleges on campus.  Before you  become a business major, you must successfully complete a set of lower division courses.  This makes you eligible to be a business student, and typically you then still have 60 credit hours to complete before graduation.  Thirty of those credit hours are the same for everyone.  They include 15 credit hours you must complete before you are admitted into a specific major.  Over the fall and spring semesters, 1,313 students did just that.  The table below shows where those students ended up….

Major Fall ’16 Spring ’17
Finance 191 174
Integrated Business 157 132
Accounting 132 112
Marketing 93 92
Management 71 54
Economics 42 42
Real Estate 12 9
Total 698 615

The numbers are always bigger in the fall, because more students come to us in the fall than do in the spring semester.  That said, the pattern is exactly the same:  Finance is our most popular major.  Integrated Business admits the second most students, followed by Accounting.  Economics and Real Estate continue to be our smallest majors.

Maybe it’s because I was an Economics major, but I’m always surprised at the disparity between Finance and Economics. Finance majors get exposed to a fair bit of economics… they better if they want to know what they’re doing.  And, according to most published reports, Economics graduates typically make a little more money than their Finance counterparts right after graduation. That differential also grows a bit as people get to the middle of their careers. Given the costs of the degree are the same, why wouldn’t Finance majors figure out that Economics is the better investment? Maybe that investments class is too late?  LOL

Then again, people maximize utility, not income… maybe Economics is seen as just too boring and needs a better compensating wage differential to encourage more students to enroll?

My readers have any insight on this?

 

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11 thoughts on “Why Does Finance Rule at the College of Business?

  1. I am a recent graduate with a degree in real estate and most people do not even know that the major is offered at UCF. I believe economics is mostly seen as a research major, where you will be spending your time mostly reading books and contributing to research departments rather than getting a job at an office. I personally saw it that way until I started working at a mortgage bank and multiple coworkers have degrees in economics. I think those degrees are simply not pushed enough for people to consider. I can understand real estate not being popular because of the market crash, people are nervous about going into a field where a market just collapsed.

    I also recognized that whenever I was at the OPD and I heard someone talking about their major, they would actually be pushed to go into IB because of the GPA and because they talk about how it is just business in a broader sense, as if you were going for an M.Ba. I have not once had someone at the OPD mention real estate, and when I have gone they have commented that I am one of the few. I’m very glad I did it, I learned a lot and landed a job in what I wanted to do before I graduated and make a good amount of money because of it.

  2. Dean Jarley,

    I am a pre-BSBA Economics student at UCF and I am a researcher at the Institute for Economic Competitiveness, so I’ve managed to immerse myself in UCF’s economics sphere a little bit, and I have a theory to offer that might answer your question. It has nothing to do with UCF–my experience with the economics program and the IEC has been overwhelmingly positive. However, I was not born and raised near UCF, so I may have some outsider experience to bring to the table. I grew up in Madison, Wisconsin, in the shadow of the University of Wisconsin. It’s a great school–I was forced to choose between it and UCF, and although I’m incredibly pleased with my decision, many of my friends went on to become Badgers. Almost all of them, like me, had hopes of becoming business majors. UW has a very competitive school of business, and direct admittance into the college straight from high school is rare. Even after that, it’s difficult to get in after your freshman year and even your sophomore year (and you’re limited to just two attempts). Unfortunately, many of my friends didn’t get in, even with high GPAs and heavy involvement on campus. Several of them turned to a very common option for those in their position: they became economics majors.

    Allow me to explain. I think UCF is great in that it offers both a B.S. and a B.S.B.A. in Economics. At Wisconsin, there is no “Business Economics” program like the one UCF has. There are many degree programs in the UW College of Business (Finance, Accounting, etc.), but the economics program falls into the realm of the College of Letters and Sciences. That college (and by extension, the economics program) accepts a much higher percentage of students, and thus is much easier to get into.

    The consequence of this system is that the Economics program at UW is filled with business-school hopefuls that didn’t make the cut. The best and brightest Finance hopefuls get into Finance, and the rest fall out of the business program and land in the economics one. At the risk of sounding dramatic, UW’s Economics program is a place of broken dreams and academic failings. Of course, the majority of these are still good students, but they aren’t as good as their counterparts who got into the business school. From my observation, few people choose economics at UW because they love the field–many choose it as a last resort.

    As a result, I feel that Economics is viewed as a second-rate degree in the state of Wisconsin. If many other schools use a system similar to Wisconsin’s, it’s possible a stigma has formed around Economics programs everywhere–even though, as you pointed out, economics graduates tend to earn more. I must admit, having grown up surrounded by this attitude towards economics programs, I thought twice about choosing the economics program at UCF. In the end, my love of the field won out, and I couldn’t be happier with my decision. I simply wonder if others in my position may have been scared off by similar attitudes.

    In any case, I’m very grateful that UCF offers students an econ program with a business core. I feel schools like Wisconsin would benefit greatly from offering similar programs. To me, it’s just another example of UCF overcoming its youth to set an example for others.

    Thanks for sharing, and Go Knights!

  3. Dean Jarley,

    I have recently had to change my major from Economics to Integrated Business mainly due to the lack of available classes during PM hours for those of us who are working professionals. I wonder if that segment of the population who is choosing Finance is doing so for the same reason and if some of the necessary Econ classes were offered later in the day if that disparity would change.

  4. I’m so proud to be a UCF Business Economics graduate. I truly believe other business majors miss out on a great major with brilliant professors and a more holistic view of business: policy, healthcare, environmental issues, public goods. The other majors are more silo-ed, ignoring big chunks of the rest of the world. I also appreciated so many electives which lent variety for every interest. The benefit of the Economics program is that it’s small. This is a huge externality for students to become close to their professors, ask questions in class and engage in more meaningful discussion. I would choose the economics program again and again, I’m in graduate school now in another discipline but I so miss the program.

  5. Dean Jarley,

    I am a recent graduate of UCF with a double major in Accounting and Finance. While I’m sure there is some validity to your claim that Economics majors earn more than Finance majors in both the long and short term, I would question whether this is entirely based on the major rather than the selectivity and job placement of the respective universities that these students attended.

    As I am sure you are well aware, most of the Ivy league institutions and many other top-notch programs do not even offer undergraduate business degrees, let alone specified finance or accounting degrees. Students at Harvard and Yale who want to study the business world and take prestigious and high-paying jobs in Investment Banking, Management Consulting, etc.. often study Econonomics, as this is the most applicable major offered at these institutions to these fields. Undergraduate students at the prestigious Wharton School at the University of Pennsylvania for example, are all granted degrees in Economics. Do you think that it is possible that the absence of Finance or Accounting majors at these great institutions contributes to the slight discrepancy in compensation between Economics and Finance majors?

    Further, since you have access to the data, is it an empirical fact that UCF economics graduates earn more than UCF Finance or Accounting graduates on average? I know that I, along with most of my friends from the Accounting program, are starting jobs in the $50,000-$55,000 range. Is this below the typical range for UCF Economics graduates or are you referring in part to the earning power of Economics graduates at prestigious institutions?

    If you are making this claim on the basis of aggregate data that ignores what I have written above, rather than the data you have access to regarding UCF graduate employment outcomes, this is very irresponsible. I hope young UCF college of business students are not relying on this advice if it is merely based on a basic search of BLS statistics.

    • Hi Chandler:

      So you’re telling me the difference is illusory because we need to correct for the fact that the smartest people voluntarily go to the most prestigious economics programs in the country where they can’t major in finance. I could use this as evidence proving my point. Lol.

      More seriously, I don’t have data that would let me test your hypothesis, but I doubt that your explanation accounts for the differences in salaries. First economics is a huge field graduating more than 28,000 students per year from a vast number of schools. There are no doubt school effects, but I doubt the graduates from a few schools skew the data for a field this big. A more likely explanation is that economics provides a more general skill set than a degree in a functional area of business. This allows economics majors to follow the money a bit easier than graduates from narrower fields. So, when finance was a really hot area, economic majors could go to work in finance. When finance went bust, they moved to other areas more easily than finance majors could. Today, for example, many economics majors go into data analytics jobs, etc. The more specialized you are coming out of college, the more locked in you are into that specialty. For example, it’s easier for finance majors to get a job in real estate than real estate majors to get a job in other areas of finance. Similarly, it’s easier for business students to get jobs in the hospitality industry than it is for hospitality graduates to get jobs with other types of businesses, and so on…. In a turbulent world, general skills trump specific ones…
      As to data on UCF grads, I’m sorry but I don’t have good data on starting salaries. I’m glad you and your friends landed such great jobs, but understand I graduate 1900 undergraduates a year from UCF, a few data points doesn’t really tell me much about the average. The best I have is self-reported data on whether students say they have a job when graduating. Looking at this information over the past three years, economics majors are a little more likely to either have a job or are going on to graduate school than finance majors. That is consistent with national data, but the number of economics majors (87) is tiny relative to the number of finance grads (1100).
      That was fun. Thanks for such an interesting comment Chandler.

      • Thanks for your quick reply,

        Your explanation of the utility of a generalist skill-set is very interesting. I definitely agree that students with a more generalist skill-set are more easily able to pivot and pursue a more broad spectrum of opportunities. A student with a specialized degree in a subject like Accounting, Information Systems, or a specialized branch of Engineering is likely to pursue career opportunities within these narrow fields, where they can utilize these specialized skills. A student with a liberal arts degree in a subject like Communications or Social Science is more able to adapt their skills to various environments and pursue more diverse opportunities. There is clearly a relationship between the level of specialization of a degree and the level of specialization of the career opportunities it qualifies you for, this is by design.

        Where I begin to question this line of reasoning is when it is used to imply that having a less-specialized degree or vocation will lead to higher income, as a general trend. Petroleum engineering is a major that is known both for its high degree of specialization and the high incomes that it enables. (Ask Paul Gregg about this one, he’s probably hired a few of these guys). Will the average petroleum engineer struggle with finding employment in the short term if oil prices plummet and layoffs ensue? It is likely that he would, however, this does not change the fact that Petroleum Engineering has the highest expected income of any bachelors degree. I would note that most of the top-earning degrees are in STEM fields, which tend to provide specialized skills that are less transferable than liberal arts skills.

        Your point about Economics majors being more easily able to pivot to new opportunities than Finance majors is interesting to me. It definitely seems reasonable to me that Econ majors have a better shot than Finance majors at getting say, data analytics jobs coming out of school today because of their generalist quantitative skill-set. However, in your example of the Economics major who was working alongside Finance majors during Wall Street’s hey-day, I am not convinced a laid-off financier with a bachelors in Economics would be any better off than a laid-off financier with a bachelors in Finance. (I could be wrong on this, I’ve never been in this situation, but I have typically been asked more about my work experience in interviews than about my coursework now that I have graduated).

        I find your point about the higher likelihood of Econ students entering graduate school to be a bit confusing. I would be willing to bet that students in Psychology and Philosophy go to graduate school at a higher rate than Business students, however, I think this has more to do with these students needing to go to graduate school to reach their goals than it does their major being more “valuable”.

        It’s unfortunate that we don’t have access to more complete data for purposes of this analysis, I did not mean to imply that my experience or the allegorical experience of my friends was reflective of the entire student body, I was merely providing a point for comparison that was familiar to me.

        In practice, I honestly believe that students who study Finance are often looking for different career opportunities than those studying economics. For UCF students, most of my fellow Finance majors pursue careers in either corporate finance, which tracks more closely to accounting work than economics work, or financial services sales jobs, which I suppose they could have gotten with an economics degree just as easily. Whether Finance or Economics is the superior degree is probably not important, but reducing the analysis to a simple NPV formula and saying Finance majors made the wrong call because they didn’t take an investments class soon enough is a bit of a stretch, even if all in good fun.

        I concede that the number of students at elite institutions is insufficient to have a huge impact on the data, however, I also do not think there is a huge difference in terms of the earning potential of the two majors you compared. If there are truly better opportunities available to Economics students at UCF than Finance students, maybe you should consider putting a few of your Econ professors through a stint in UCF’s renowned professional selling program. The data shows that students are buying your Finance product more than 10x as much as your Economics product. Maybe the customer isn’t always right, but if they are wrong over 90% of the time, your marketing campaign may need a bit more work.

  6. http://www.businessinsider.com/most-popular-ivy-league-major-2017-4/#harvard-university-5

    If you notice, Economics is the #1 most popular major at most of the Ivy League schools, (which don’t offer finance concentrations). The exception is Penn, which actually offers a finance concentration within the Econ degree, (in this exception scenario, more students choose Finance than Economics). I question whether Economics being the most popular major at most of the highest-earning universities really has no effect on the average earnings of the degree. (Consider that the average earnings of an Econ major at these top schools often eclipses $120,000, which is a multiple of the average earnings of an Econ major at UCF).

    Even with more than 28,000 students in the population, I bet this has at least some impact. Further, consider that Economics is an unpopular major at lower-earning schools, (as you have pointed out), and an extremely popular major at higher-earning schools, (as I have pointed out), and the importance of those elite schools becomes a lot more prominent in the data. Just as an example, Princeton has a student body of less than 9,000, while UCF has a student body of over 60,000, yet Princeton has graduated more than twice as many Economics majors in the past 10 years as UCF has.

    Earlier you said that the smartest people voluntarily attend the best economics programs and this proves your point, I find it interesting that at the only Ivy league school where Finance is offered as a major, more students choose to concentrate in Finance. Surely these Wharton grads know better and should be pursuing a more general skill-set.

    • Hi Chandler:
      I’m sorry but I don’t have the time to respond to all of your points. We could speculate endlessly about the sources of unexplained heterogeneity in the data, but here’s what we do know: On average, people who chose to get an undergraduate economics degree earn more out of college and at midcareer than people who chose to major in finance. This doesn’t mean you personally made a suboptimal choice. There is a lot of variance around these two means and I’m willing to bet you will earn more money than some of those Ivy League economics grads once you get out of our MSA program. And, remember people are utility maximizers not income maximizers (it may be that UCF students just don’t like economics). That said, the data do show that economics offers students high earning potential and we both agree can even land you a job in finance (ask Amanda Brown).

      As an aside, it may also humor you to know, that your low-paying alma mater graduated an Economics major more than a few years ago named Glenn Hubbard—he’s the dean of Columbia’s Business School.

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