Children's Day 2021: While investing for children is parents' responsibility, it is also important to make them understand the role money plays in life and what a person should do to generate and grow wealth.
Should you introduce your child to the world of cryptocurrencies? Ironic, it may sound. As Prof. Padmanabha Ramanujam of IFIM Law School, says in all probabilities, it ought to be your child who is better equipped to introduce you to the world of cryptocurrencies. If this is not the case, then probably this is the best time to make your child familiar with cryptocurrencies. But why, and how?
Parents, anyway, invest money in options such as stocks, fixed deposits, mutual funds, property, small savings schemes like PPF, SSY etc. to secure the financial future of their children. While investing for children is parents’ responsibility, it is also important to make them understand the role money plays in life and what a person should do to generate and grow wealth.
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Nischal Shetty, CEO and Founder of WazirX, says investing in cryptocurrencies may serve the same purpose as traditional investment options, and probably with better returns if one can understand associated risks and navigate wisely. For this, it is also important to understand the crypto ecosystem.
“Parents or eligible people invest in long-term investment options such as stocks, FD etc as they provide years of fruitful returns for their children and have a long term orientation. The same is the case with Crypto, while children do not hold accounts, parents or guardians can invest in the world of Crypto, on behalf of their children. It is in fact becoming important for parents to start incubating learnings on crypto and blockchain to children, considering the way the industry is evolving. This will further help to build on financial freedom by getting a headstart to diversify your investment portfolio and be a part of the future of finance journey,” Shetty told FE Online.
Shetty further said that today, investing in cryptocurrency is definitely not critical but managing finances should be accounted carefully with due diligence as crypto is a high-risk investment.
“Furthermore, with a large population of young customers in preview of different financial uncertainties looking out for credit to extend benefits, it is indeed a smart step to understand the crypto world at an early age with the right education and awareness as it prepares children for upcoming situations and glances around the industry,” he said.
To start the crypto learning journey of your child, Blockchain and Emerging Tech Evangelist Sharat Chandra says the best way to bring kids closer to crypto is by giving them a crypto wallet instead of a “Piggy Bank”. It would become easier for them to relate to crypto tokens as a new form of “digital money”. Parents can then explain different types of digital tokens in simplest terms and co-relate with relevant examples.
“Once kids understand these tokens well, they can start collecting cryptocurrencies on their own. Collecting tokens can be a step towards teaching kids the power of compounding and will also inculcate good financial behaviour in children,” Chandra told FE Online.
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Prof. Ramanujam suggests that you should begin the introduction of crypto to your child as a form of an alternate currency in an electronic form. Further, that they are analogous to stocks or shares of a company which one can invest/trade. You should also tell your child that they need not pull their head off the screen to start investing/trading in crypto. There are ample mobile apps that lets one dive into the crypto world electronically without much hassle.
What if curiosity possesses your child as to why should there be an alternate system of payment when mainstream currencies have already moved electronic?
“Walk her through the pages of history inscribed with the perils of the 2008 global economic crisis, bank scams such as the PNB, Yes Bank, and arguably the demonetization. May she know the dangers of the draconian control that the financial institutions have over the conventional currencies. Don’t forget to tell her that the first-ever cryptocurrency i.e. Bitcoin was an aftermath of the Great Recession of 2008. That the fact that one Bitcoin is now worth close to half a crore rupees speak volumes about the major shift in people’s trust from mainstream to the alternate financial system,” Prof Ramanujam suggested.
Even as cryptocurrencies have not yet become a preferred medium of currency for daily transactions and are limited to mostly trading and investments, they have proved more efficient in terms of foreign funds transfer as no additional fee is charged as well as it takes minutes than days when compared to banks.
However, considering extreme volatility and other risks, like the absence of crypto laws and regulations, it is also important to make your child understand the safety concerns.
“It would be unwise to skip the part where there equally are fraudsters who propagate their hyped altcoins and defraud uninformed citizens who blindly invest in the hope of betting on the next Bitcoin. In this vein, given the volatile nature of crypto, it also becomes imperative to emphasize the fact that one must invest only as much as one is comfortable losing,” Prof. Ramanujam said.
The suggestions/recommendations around cryptocurrencies in this story are by the respective commentator. Financial Express Online does not bear any responsibility for their advice. Please consult your financial advisor before dealing/investing in cryptocurrencies.