Financial literacy is very important for everyone and getting your children started with investing can be a valuable step in teaching them financial responsibility and helping them build wealth over time. Time plays a key role when it comes to make good financial moves and grow your wealth. If you prepare your children early in life for key financial lessons, they will know how to make good use of their money and avoid committing big financial mistakes.
Instead of letting your children spend their money on things they may not find useful after some time, you must tell them about the importance of saving and investing. This will instil a sense of handling money responsibly.
Here are some steps you can follow to get your child started with investing:
Educate About Money
Make sure your child understands the basics of money, saving, and investing. Explain concepts like compound interest, risk, and the importance of long-term financial goals. Even small savings from childhood days can make a big difference.
Adhil Shetty, CEO, Bankbazaar.com, says, “Educating your children about savings and investments is crucial because it equips them with lifelong financial skills and help them to take wise decisions about their money. It also fosters a sense of responsibility and discipline. This enables them to save for future goals, such as education, homeownership, or retirement.”
Also Read: Home Loan Refinance: Best time to refinance your housing loan for a lower interest rate
Open a Bank Account
Start by opening a savings bank account for your child. Many banks offer specialised savings accounts for minors. This is a good place to start accumulating some money before moving on to more advanced investments.
Shetty explains, “Savings account provides a safe place to accumulate money, ensuring your kids don’t spend impulsively. Additionally, a savings account also offers a modest interest rate, helping money grow gradually. It also facilitates learning about banking and personal finances.”
Set Financial Goals
Help your child set clear financial goals. These goals can be short-term (buying a new gadget) or long-term (saving for college or retirement). Having specific goals will make investing more meaningful for them.
Teach Budgeting
You must encourage your children to save a portion of their allowance or any money they receive as gifts. Teach them to create a budget and allocate some of their savings for investing.
Explore Fixed Deposits
Fixed deposits offer a more conservative way to invest. They provide a fixed interest rate and are less risky compared to stocks. This can give some idea about investment and returns to your children. If possible, let them handle their investments independently while you keep guiding them.
Teach Investment Risk
Let your children understand the concept of risk and the importance of diversification. Explain that it’s not wise to put all their money into a single investment basket. Regularly review your child’s investments together. Discuss performance and any adjustments that may be required.
Encourage Patience
Investing is a long-term game and you children must learn this lesson. Market fluctuations are normal, and it’s important to stay patient and not make impulsive decisions.
Tax Planning
You must educate your child about tax planning and how certain investments can help in tax savings. For example, explain the benefits of investing in a Tax-Saving Fixed Deposit or Equity-Linked Savings Scheme (ELSS).
There are several educational resources available to help your children gain knowledge. You must remember that investing always carries some level of risk, so it’s essential to start small and gradually increase the complexity of investments as your child gains understanding.
