Parents should teach their children how to invest in stocks along with the benefits of doing so. Even though one can invest in stocks for minors, parents should encourage the child to monitor them to develop a habit of investing. Doing so, experts say, it teaches the art of investing in stocks at a young age, and children learn how to get inflation-beating returns from this investment over time. The great American investor Warren Buffett bought his first stock at the age of 11. It shows that one can learn stock investing at a young age.
Along with starting early, industry experts say the concept of compounding, and how a good stock should be left untouched to get the best profit out of it should be imbibed in the child’s mindset. The long term benefits of regular investments need to be explained to kids with practical examples and simple terms to the young minds.
Vikas Singhania, CEO, TradeSmart, “One can invest in stocks for minors and also encourage the child to monitor them to develop a habit of investing. The only condition is that it should be in good companies with strong management.” Note that the investment made is periodic to get the benefit of compounding and averaging.
Reasons why parents must teach their children to invest in stocks;
Archit Gupta, Founder and CEO, Clear says “Many youngsters and millennials invested in stocks for the first time after the lockdown last year. For example, the depositories CDSL and NSDL added 1.43 crore, new investors, from March 2020 to March 2021, a 1.9 times jump year-on-year.” He further adds, “It shows that stock investing is bound to rise in the future, and teaching children about stocks gives them a head start in the investment world.”
To start with, you can teach your children to invest their pocket money or cash gifts in stocks. It teaches them to invest in critical financial goals such as higher education rather than wasting money on unnecessary wants.
Many stocks have given massive returns in a short period. If children start investing in stocks at a young age, they could earn sizable returns if they hold good stocks for the long term. “Parents will have to open and operate Demat and Trading Accounts on behalf of their minor children,” adds Gupta.
Things to keep in mind while teaching stock investment for kids
1. Be one step ahead of your children: You can teach your children about stocks only if you know stock investments yourself. “It helps to study the various techniques and concepts of investing in stocks to help your children invest in companies with solid fundamentals,” says Gupta.
2. Be a mentor to your children: Experts say, as a parent, you must teach your kids stock investing as a mentor rather than as a stock market expert. For example, if your kids ask questions on stocks and you cannot answer them, involve your kids in searching and finding the answers they seek.
3. Stock market games: You will find many online stock market games, tools and puzzles which teach kids the art of investing in stocks. Gupta says, “It helps as these games and tools teach kids how to invest in stocks which lessen the burden on them.”
4. Start from the basics: Teach your children the basics of risk vs reward, profit and loss and how investments need time to grow before investing in stocks. Moreover, experts suggest one could teach their children how to check the stock prices and access news on companies.
5. Encourage children to invest in stocks: According to Gupta, after your children are comfortable with the concepts of stock market investments, let them pick stocks themselves. It helps if they invest their gift or pocket money in these stocks and see how their money grows with time.