Teaching your children to invest from an early age prepares them to take on financial responsibilities with confidence later on in their life. Read on.
As parents, our focus tends to remain on ensuring that our kids receive the best of education, feel emotionally stable and turn out to be polite, law-abiding citizens. We also leave no stone unturned when it comes to providing them a financially-secure future, so that they can manage well on their own when they leave the nest. But instead of leaving our investments in their name, what if we actually help them become more self-sufficient by teaching them how to invest?
Like with everything else, children depend on us to form an impression and define their attitude towards things in their lives. So the lessons that you teach them early on in their lives will remain with them forever. This extends to money matters as well. When they start earning, most youngsters throw their money away buying things either they’ve always longed for or never had enough money to buy in the first place.
Here’s how you can give your children a head start in investing:
Early Bird Advantage
Given that schools and colleges across India do not teach financial literacy and Indian families shy away from discussing money matters with their kids, starting early in investing is pretty difficult for most Indian kids. Before your kids start investing, it’s imperative that they’re aware of the vagaries of the market. Don’t hesitate to discuss money matters with your children as and when you can. This will not only help them develop a basic, working knowledge of finance, but will also make them more conscious about when and where they are spending their money.
Sometimes, as parents, we may ourselves may not be the best source of financial advice for our children. Given the low level of financial literacy in India, sometimes our advice can be coloured by our personal experience and can be downright misleading and wrong.
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Poor Knowledge=Bad Advice
According to experts, youngsters are at the greatest risk of making bad financial investments. As per Hyderabad-based financial planning portal ArthaYantra.com, nearly two out of three professionals aged 21-25 years base their financial decisions on their parents’ advice. For instance, traditional Life Insurance policies and PPF are all-time favourite investment choices among Indian parents. In the case of a Life Insurance policy, most parents buy an endowment or money-back policy, pay the premiums for the initial years, and once their child starts earning, they shift the onus to them.
While one can opt for Life Insurance policies once they have substantial funds saved away in other investments, a Life Insurance policy is a bad idea as a primary investment. Investing in Life Insurance policies and PPF actually result in sub-optimal outcomes and youngsters would be burdened with sub-par yields for the next 15-20 years.
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However, one can’t blame the parents for forcing poor investment choices on their children. They’ve lived through market crashes and Mutual Fund collapses. Life Insurance policies, bank deposits and small savings schemes were their only hope. Little surprise that they would want their children to pool their money in the same investments that helped them create wealth in the past.
Aside from investment choices, parents should also lay down examples and practices that their kids can follow to develop a healthy attitude towards money. They can’t be missing EMI payments and raking up a huge debt themselves and then expect their kids to not be influenced by such moves.
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Guiding Their Entry Into The Financial World
The financial world can be quite tricky for kids to grasp unless their parents handhold them through their journey, navigating the vagaries of the financial market. Children learn to manage money better and understand its value when they’re in charge of their finances. It is possible that they will make mistakes initially and even squander away one month’s expenses on an outing with their friends, but only when they’re forced to spend the rest of the month in utter frugality will they realise the value of money. Parents can open a bank account for their children and impose a restriction on the number of transactions they can make or set daily spending limits on their Debit Card. This way their children can become more familiar with using a bank account and plastic money, and grasp how the financial world operates.
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Is Money Talk Good For Your Child?
Teaching money skills to young children is a double-edged sword. How you conduct money conversations with your child depends a lot on the rapport you have with your child. While having money conversations with your child, you also run the risk of distorting their value system. The conversation has to be nuanced and free of bias – one that doesn’t advocate money as the be-all and end-all of life, but as an important part of life. Teach your child to accord enough importance to money but not to the extent that it becomes the only driver of their ambitions. A correct understanding of money and ethics will be crucial in this regard.
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Need a push to make a head start in your own investments? Why don’t you start by exploring your options?