Kolkata, December 19: Investing is something your child will not be taught in school. Since formal training on this subject is not readily available, at least at the school level, the best way to learn is to start investing. Just like riding a bicycle, books cannot teach you how to invest. If you do not fall, you will never learn. You can start inculcating investing habits in your kids from a very early age.
While many parents teach their kids money concepts, they can also be introduced to investing in small steps over a period of time. When children are 16, they solve complex maths problems in school, so they can easily learn about investing.
The baby steps: This is all about etching basic concepts subconsciously in your child’s tender brain. Even when he is too young to go to school, you can sow a few seeds in a pot and show him how with a little care it will grow into plants.
Rely on the good old piggy bank. Make it transparent. Your child will learn one vital truth- every-time he spends some money, the level goes down and vice-versa. These concepts will stand him in good stead later on in life.
As you go further: When the child is a bit older and learning math in school, start giving her small amounts of pocket money. It should be just sufficient for her to meet his needs and leave a small surplus, on which saving should be encouraged. And if you think she is old enough to go and buy something on her own, make her accountable and tell her to keep a ledger of expenses. This is also a time to open her a bank account and explain deposits and interest. You should tell your child that if she puts some money in a bank she can buy something next year with the interest, with the amount remaining untouched.
Initiation into investment: Once your kid is well versed in basic money concepts, explain and introduce the power of compounding, the various asset classes, taxation and the risk return idea. Let children be around while taking an investment decision like investment in stock and securities, real estate and gold and explain to them the basis of selection. Encourage them to ask questions and be part of the decision.
This is a good time to encourage your child to start her own investment. They can put in some of his own money and you can add an equal amount as well. Tell them to choose the investment option. Ask them to explain the basis of their choice.
Investment into FDs, mutual funds and PPFs are advisable. Keep your child motivated by goals and if she wants a gaming console let her plan for that. Be the guardian, friend and guide.
Taking the plunge: When children are 18 or even earlier they can be encouraged to invest in mutual funds. Start with small amounts so that the child gets to know how mutual funds work. Answer their questions, give them investment advice, allow them to make mistakes and also correct them sometimes. The idea is to be always there as a coach but ensure that you are not doing spoon feeding.